Finance｜JPY/HKD Falls to 5.45 as Core CPI Hits 42-Year High in June
In recent economic news, the Japanese yen (JPY) weakened against the Hong Kong dollar (HKD), falling to 5.45. This comes as the core Consumer Price Index (CPI) in Japan rose by 4.3% in May, reaching a 42-year high in June. Additionally, the manufacturing Purchasing Managers Index (PMI) returned to contraction.
The Japanese government reported that the overall national CPI rose by 3.2% year-on-year in May, slightly narrowing from 3.5% in April. The national core CPI, which excludes fresh food but includes energy, also slowed down to 3.2% year-on-year from 3.4% in April. However, it remained slightly higher than the market’s expectation of 3.1% and has stayed within the central bank’s 2% target for 14 consecutive months.
Of particular concern to the Bank of Japan is the core CPI, which excludes fresh food and energy. It accelerated to 4.3% year-on-year, marking the largest increase in nearly 42 years since June 1981. During the same period, energy costs fell by 8.2% year-on-year due to government subsidies, while food inflation accelerated from 9% in April to 9.2%.
Market estimates suggest that the Bank of Japan may raise its inflation forecast in July and potentially adjust its stimulus policy in response to the data exceeding expectations.
On the other hand, Japan’s manufacturing PMI fell into contraction again in June, with the initial value dropping to 49.8. This falls below the 50 dividing line between prosperity and decline, compared to a final value of 50.6 in May. Both output and new orders experienced declines, with new export orders falling at the fastest pace since February.
In contrast, Japan’s services PMI initially fell to 54.2 in June, marking the first slowdown in seven months. However, it remained strong compared to a record high of 55.9 in May. New business and new export orders slowed from May but were still driven by improved customer numbers and spending amid the post-pandemic recovery. The initial composite PMI for June was 52.3, down from a 10-year high of 54.3 set in May.
The weak economic data, combined with the news that US Federal Reserve Chairman Powell may raise interest rates twice in the second half of the year, further weakened the yen. It temporarily traded at 143.2 against the US dollar. The exchange rate between the yen and the Hong Kong dollar also experienced fluctuations, with the yen once falling below 5.5 and reaching 5.45. The latest report indicates a rate of 5.55.
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Overall, the recent economic developments in Japan, including the rise in core CPI and the contraction in manufacturing PMI, have significant implications for the country’s economy and monetary policy.
What implications does the recent surge in core CPI have for the Bank of Japan’s monetary policy stance
Uring PMI fell back into contraction territory in June, recording a reading of 48.8 compared to 52.0 in May. This indicates a decline in manufacturing activity. The decline was mainly attributed to the ongoing impact of supply chain disruptions and a shortage of electronic components.
The weakening of the Japanese yen against the Hong Kong dollar reflects the market’s reaction to the high core CPI data. Inflationary pressures can lead to a decrease in the value of a currency as investors anticipate higher interest rates to curb inflation. This can make the currency less attractive for foreign investors.
The Bank of Japan has been struggling to achieve its 2% inflation target for years and has implemented various stimulus measures to boost inflation. The recent surge in core CPI could prompt the central bank to reassess its current monetary policy stance. If the trend continues, the Bank of Japan may need to adjust its stimulus policy to avoid further overheating of the economy.
Overall, the increase in core CPI and the contraction in manufacturing PMI highlight the contrasting challenges faced by the Japanese economy. While higher inflation poses a risk to the economy, a decline in manufacturing activity could impact growth prospects. The Bank of Japan will need to carefully manage these competing concerns to ensure stable economic growth.
The weakening of JPY/HKD and the spike in core CPI signal an unsettling future for the financial markets, with the contraction in Manufacturing PMI adding to the concerns. A rocky road ahead.
This article provides a brief yet impactful overview of the current state of the finance industry. The JPY/HKD fall, coupled with the record high Core CPI and contracting Manufacturing PMI, reflects the challenges and complexities facing the global economy. It is important for investors and policymakers to closely monitor these developments and implement effective strategies to mitigate potential risks.