The Dollar/Yen closed lower last week after a string of disappointing U.S. economic reports raised concerns the global economic slowdown had reached the United States. The initial selling pressure was fueled by worries that a slowdown in manufacturing will spread to other parts of the U.S. economic machine.
Most of the selling was fed by safe-haven buying as investors aggressively shed the higher risk U.S. stock market for the safety of the U.S. Treasury bond market. This drove down Treasury yields, making the U.S. Dollar a less-attractive investment.
Last week, the USD/JPY settled at 106.911, down 1.027 or -0.95%.
The two key reports that encouraged investors to sell the USD/JPY were the ISM Manufacturing PMI report that showed manufacturing activity contracted in September for the second month in a row, and the ISM Non-Manufacturing PMI, which also declined but remained in expansion territory. Helping to encourage investors to lighten up on the short side was the September Non-Farm Payrolls report, which provided some assurance that despite a slowdown in hiring, the labor market remains tight, which is a positive for consumers and the economy.
There were no major reports out of Japan last week as investors continued to dwell on the possibility of a rate cut by the Bank of Japan at its policy meeting on October 31.
The minor reports were mixed. On the positive side, retail sales, the unemployment rate, the Tankan Manufacturing Index and the Tankan Non-Manufacturing Index came in better-than-expected. On the negative side, preliminary industrial production, housing starts, final manufacturing PMI and consumer confidence, disappointed.
Bank of Japan Summary of Opinions
Bank of Japan (BOJ) policymakers discussed the potential for further easing at their latest meeting, with one member suggesting another cut to short-term interest rates amid rising expectations for additional stimulus, a summary of their opinions showed.
Lingering concerns over the global economic outlook and the expected impact from the two-point consumption tax hike on October 1 prompted the Policy Board to decide at its meeting on September 18 and 19 to re-examine the outlook for Japan and prices at its October meeting.
“It is necessary to take additional easing measures pre-emptively,” one of the nine Policy Board members said, adding that “given the current flattening of the yield curve, lowering the short-term policy interest rate is appropriate.”
Another member of the Policy Board said further easing would be needed. “The bank should examine whether additional easing measures will be necessary,” the member said, adding the BOJ “needs to consider all possible policy measures without preconceptions.”