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Prospects Daily: Japanese Yen strengthens as the country’s current account turns to surplus again

Global Macroeconomics Team's picture

Important developments today:

1. Japanese Yen strengthens as the country’s current account turns to surplus again

2. Japan’s current account returns to surplus in February

Japanese Yen strengthens as the country’s current account turns to surplus again. The Japanese yen rose versus the currencies of its 16 most-traded counterparts as the country’s current account moved to surplus in February after a record deficit in January, lending support to the currency as a safe haven amid renewed concerns over global economic growth. The yen strengthened by 0.6% to 106.22 per euro after reaching 106.12, the strongest level since March 7th, and the Japanese currency climbed 0.4% to 81.28 per dollar, strengthening for a fourth day. Along with weak U.S. job data, revived concerns over European debt crisis, and rising inflation in China, and a stronger yen also contributed to the weakness in the Japanese stock markets as yen strength is likely to weigh negatively on Japanese exporters. The benchmark Nikkei 225 index fell 1.4% to 9,555.9 on Monday, registering its longest losing streak since November (sliding for a fifth day).

Japan’s current account returns to surplus in February. Data released by the Ministry of Finance put February’s surplus at Y1.178 trillion ($14.5 billion) - a turnaround from the record deficit of the previous month. Nonetheless the surplus was 31% lower on a year-on-year basis. For the fifth consecutive month Japan’s trade and services account has been in a deficit, beating the previous high of four months in the aftermath of the Lehman crisis. Japan’s exports continue to suffer from a strong yen as well as weak demand from Europe, and its imports bill is soaring on account of the need to import more gas for power generation as most of its nuclear reactors were shut down following the March 2011 earthquake. However an income surplus from its massive investments abroad (3.9% higher on a year-on-year basis) helped to compensate for the deficit in the trade in goods and services account in February.

Among Emerging Market

In East Asia and Pacific, China’s consumer price inflation accelerated to 3.6% year-on-year (y/y) in March from 3.2% in February, driven mainly by a sharp pickup in food prices due to bad weather. However, the producer price index fell 0.3% (y/y), the first decline since November 2009, suggesting weakness in the real sector.

In Europe and Central Asia, Russia’s central bank kept its benchmark overnight repurchase rate at 5.25%, even after annualized inflation fell to its lowest pace in more than a decade in March, citing rising medium-term risks to inflation from the planned increase in regulated energy prices and tariffs in July.

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