Forex news that the Bank of Japan would not undertake new measures to weaken the yen continued the currency’s appreciation against the dollar and the euro. The dollar traded at the range of Y78.44 – Y78.60 while the euro fell to Y97 from Y97.46. The yen has strengthened by 1.4% against the dollar over the past month and has also recorded highs against the euro, pressuring the BoJ and the Ministry of Finance to act on weakening the currency.
The BoJ meeting retained the level of its asset-purchase fund at Y70 trillion. Despite concerns over the strong yen causing the country to lose competitiveness, further monetary easing measures are not seen unless the yen continues to appreciate. Policy interest rates were also maintained by the BoJ at the 0.0% to 0.1% range.
Meanwhile, forex news reports from the past month indicate that the Japanese economy may not be as strong as previously believed. Factory output fell for the third straight month, by 0.1% in June from a 3.4% fall in May. The decline was attributed to smaller output in the iron, steel and machinery sectors. This, in turn, could be due to the slowing US and China economies as well as Europe’s growing sovereign debt crisis. Export figures in June fell by 0.6%, although analysts were unsure as to how much of the decline was attributable to a decline in global demand for Japanese exports and how much due to the strong yen.
Meanwhile, revised second quarter Gross Domestic Product growth rates for the period ending June 30 weakened by 2.1% from the same period last year, better than the 2.2% expected by traders. On a quarterly basis, GDP fell 0.5% during the quarter, which was in line with median forecasts and lower than the 0.3% that was initially reported. The weakening was attributed to companies restraining from capital expenditures due to concerns over weakening global economic growth as well as the appreciating yen.
However, GDP is expected to expand in the third quarter of 2012 following three consecutive quarters where it contracted, due to the quick recovery of the country’s supply chains after the March 11 earthquake as well as increased public reconstruction spending. Japanese forex news revealed last month that the government plans to increase spending on reconstruction projects by Y13 trillion apart from the Y6 trillion already set aside in two supplemental budgets.
Another forex news development that could affect overall market trading was the second major system error of the Tokyo Stock Exchange Group over the past seven months. The error halted derivatives trading for some 95 minutes on August 6, causing share trading volumes to fall and government bonds to drop. Index futures trading were diverted to the smaller Osaka exchange while the Tokyo Exchange was offline. Compounding the error was the lack of backup systems that had previously resulted in the February disruption, which was the biggest shutdown in six years. The system error represents a setback for Tokyo’s bid to become a global equity trading hub, following twenty years of corporate corruption as well as economic stagnation and equity losses.