Recession fears grow as yen strengthens – Nomura

By FXStreet Analysts at Nomura explained that the yen has been strengthening and some people have even expressed worries that Japan might enter another recession.

Key Quotes:

“USD/JPY was 120 at end-2015, but dropped below 111 temporarily on 11 February amid the turmoil on the global financial markets that lasted through mid-February. Global financial markets subsequently have been regaining stability, but the yen has not stopped strengthening.

On 5 April, USD/JPY dropped below 110, and on 7 April it dropped below 108 for the first time since October 2014. Concerns have been growing about the negative impact of the recent appreciation of the yen on the Japanese economy, and some people have even expressed worries that Japan might enter another recession.

The typical path for this would be that yen appreciation causes exports to fall and thus leads to a deterioration in manufacturers’ earnings, which in turn causes companies to cut capex and employment.

From the perspective of the economic cycle, whether or not companies carry out stock adjustments by cutting back on capex and employment is key. If they adjust their stock, the economy will enter a negative cycle where lower demand leads to lower production, lower incomes, and thus to lower demand, …read more

Source:: FX Street