Among the four main foreign currencies traded globally, the JPY or the Japanese Yen is one of the leading ones. Just like the other key players – the GBP, the USD and the Euro - the Japanese currency also is driven by the market and economic conditions.
We examine here the top 10 macroeconomic forex indicators that impact the JPY too.
10 Most Important Forex Indicators for JPY:
1. GDP
The GDP or Gross Domestic Product is considered to be the most standard measure of the monetary and market value of the entire goods and services that is produced within a country’s border over a specific period. Globally, this is used as the first level indicator of a nation’s economic wellbeing.
Going by nominal GDP, Japan stands third globally behind US and China, thanks to its robust manufacturing sector. The automobile and electronic sectors have been bellwethers and strong contributors to the economy.
The year on year growth of the GDP signals that the fundamentals of a country are strong and stable. This, in turn, along with the other indicators listed here plays a significant role in the valuation of the currency of a country.
The JPY too has remained fairly strong and been a good ambassador of the Japanese economy. It is one of the top four traded currencies in the global forex market.
2. Current Account
The current account provides a picture of the balance of trade that a country has with other nations. It accounts for the export and import that are conducted over a period and results in either a trade surplus or a trade deficit, depending on whether there were more of exports or imports.
This can vary from country to country with whom trade happens. When the imports exceed the exports, it can be detrimental and can result in a deficit in the current account. It forces a nation to buy more foreign currency and, thereby, reducing the rate of its own currency.
3. Trade Balance
An economy’s trade is comprised of both exports and imports. The Trade Balance is the measure of the difference in the value in the import and the export of goods and services.
Having a positive reading means a higher value of goods and services were exported over imports. If the reading is higher than expected, it is a good sign for a currency and means a bullish pattern. When lower, it can mean a bearish formation.
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4. Industrial Production
The industrial production of a nation has a direct bearing on economic indicators like the GDP, unemployment rate, retail trade, among others. These, in turn, also influence the currency’s performance.
There is a report on Industrial Production published by the Ministry of Economy, Trade and Industry of Japan each month. It measures the production and output of industrial establishments including factories and mines based in Japan.
Data on industrial production are an indication of the state of health of the manufacturing sector. Any changes here results in a corresponding movement in the JPY too. The better the reading, the higher the appreciation of the JPY and, conversely, any blip can also push down its demand and rate.
5. Retail Trade
Just like Industrial Production is an indicator of the output by the manufacturing sector, Retail Trade is another factor that has a potential impact on a country’s currency. The dependence on actual sales happening on the production done makes the Retail Trade data an important indicator of consumer spending.
At an economic wellness level, these twin indicators together have a strong impact on the GDP and, consequently, on the currency’s performance too.
When the retail trade numbers better the expectation, the JPY shows bullish tendencies while a lower number means a bearish market.
6. Jobless Rate
Another indicator that is directly linked to Industrial Production, and in turn to GDP, is the Jobless Rate. For a country like Japan that has a robust manufacturing sector that has a consistent requirement to employ, there is comparatively a lesser of lower employment being impactful.
The Jobless rate or the Unemployment rate is a measurement of the percentage of the unemployed and those looking for work among the overall work force in Japan. The data released, when compared with that of previous months, helps understand the onward impact on other indicators.
The jobless rate also impacts the performance of the JPY, with a higher reading resulting in a downward movement and a lower reading improving the currency rate.
7. Tokyo CPI
Published by the Statistics Bureau, the Tokyo CPI measures the movements in prices of all goods and services, barring fresh food, to arrive at the inflation figures for Tokyo.
The report aims to capture the average fluctuations in the prices of essential commodities that are bought and consumed by Japanese households. So, from an inflationary perspective, the change in the expenditure incurred to purchase goods and services across two periods helps assess price rise or fall.
As the methodology involves taking a representative mix of the goods and services for a base period, the Tokyo CPI serves to project as accurately as possible the consumer price index. An inflationary phase can indicate a weaker currency and a lower reading point to a weaker JPY while a higher one boosts the rate.
8. Eco Watchers Survey
The Eco Watchers Survey is an interesting and unique mechanism of measuring business sentiment and the prevalent mood of those sectors that have a direct contact with consumers. This, typically, includes businesses like taxi drivers, waiters, and barbers and is spread across about 2000 workers.
This survey is released by the Cabinet Office and its reading gives an insight into short term economic trends, region-wise, in Japan.
The higher the reading of the survey, the better is the outlook and, consequently, would have a positive impact on the JPY. A lower reading is not preferable and can signal a bearish trend for the JPY.
9. Capital Spending
Here is another trait of a sound economy and an indicator that affects the currency rate of any nation. The levels of investment that companies make in terms of capital spending can be a good measurement of how confident the industry and corporate sector are on the economic front.
Capital spending is a measure of the value of capital infused and this, in turn, reflects in many linked other macroeconomic indicators like GDP, unemployment, trade balance, retail spends and others.
In Japan, capital spending numbers are reported quarterly. As a higher spend is a healthier sign, that also influences the JPY positively while a lower number can put pressure on it.
10. Workers Household Spending
In good economic conditions, key indicators like industrial production and retail trade do well. With companies increasing capital spending, employment numbers are also on the rise.
This is often accompanied by a higher worker household spend on the back of higher income earned. When there is an increase in the number of households that spend more, this is a good sign for overall economic growth. Consumer spending can be an overwhelming part of the GDP with a nearly 60% contribution.
For the JPY too, a higher number points towards a stronger currency and a lower number can pull it down.
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