Japanese Yen Strengthens, Manufacturing Sector Declines

The confidence of Japanese manufacturers has had a huge drop in February following a high reading from the survey of Reuters Tankan, indicative of the Japanese yen strengthening as the uncertainty of the global stock market overshadowed the business sentiment.

The Bank of Japan keeps an eye on the Tankan quarterly survey for the monthly poll, which is presumed to boost the manufacturers' performance in the next three months. Although, the service-sector morale is not performing well that is already alarming for the recovery of the demand in the domestic sector.

Including 544 mixed of large and middle-sized businesses in the Reuters poll, there is a unison of response from 259 following the released of the last quarter growth since the economic spur in the 1980s due to the rigid private consumption.

The recent sell-off in the global stock market has improved the interest for safe-haven assets of investors, which has been worrisome for policymakers. A strong yen would have a negative implication to the manufacturers’ gains that could affect the incessant business cycle in investments while the officials had difficulties in setting the pace for consumer spending and its growth.

The manufacturing-sentiment is recorded to be 29 in February, which is lower than the previous data of 35 standing as the 11-year high, based on the survey between January 31 and February 4. The index is anticipated to have a bit of improvement and increase to 30 in May.

On the other hand, the index on the service sector was maintained at 33 in February, which was heavily influenced by retailers amid a heavy snow weather condition in some parts of the country that has also lessened the spending of the consumers. The index is anticipated to decline to 30 in May.

The central bank’s Tankan report implies growth of the manufacturers for five consecutive quarters, reaching an 11-year high, reflecting a positive growth for economic recovery from high offshore demand and large gains of companies.

The favorable data conveys the positive report has exceeded the negative ones, which is the basis for calculation of the Reuters Tankan indices.