Japanese Yen Weakens As Household Confidence, Foreign Investment Wanes

The Japanese yen is weakening against most of its currency rivals on Thursday as consumer confidence tumbled in December and recent investment numbers turned heads in Tokyo. The yen had rallied in the wake of the escalation in the US-Iran conflict, but with Middle East tensions abating investors resuscitated their risk appetites.

A new Bank of Japan (BoJ) survey discovered that households’ confidence in the national economy slumped to its lowest level in five years in the fourth quarter. The diffusion index clocked in at -29.8 last month, making it the worst reading since December 2014. The results highlight a bearish outlook on the world’s third-largest economy.
The survey also found that 33% of respondents reduced their spending following the sales tax hike in October. They cut their spending on restaurants, apparel, and even daily necessities, which could prove to be troublesome for a government that is trying to stimulate the economy. This could be the norm moving forward as nearly three-quarters of those surveyed think prices will be higher over the next year.
In November, the annual core consumer inflation rate came in at 0.5%, below the central bank’s 2% target. But average cash earnings contracted 0.2% year-on-year in November, which has been a common trend over the last 12 months.
This comes as the Cabinet Office’s consumer confidence measurement rose 0.4 points to a five-month high of 39.1 in December. The index has risen three consecutive months.
Financial data highlight an alarming trend: a decline in investment in Japanese stocks and bonds. In the week ending January 4, foreign bond investment decreased by $1.76 billion and stock investments by foreigners in Japan tumbled $740 million.
Next on the data front will be November household spending levels, December foreign exchange reserves, and preliminary readings of the Coincident Index and the Leading Economic Index.
The USD/JPY currency pair rose 0.31% to 109.47, from an opening of 109.10, at 15:39 GMT on Thursday. The EUR/JPY climbed 0.29% to 121.56, from an opening of 121.17.

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