A The confluence of a stronger dollar, inflation fears and the Omicron variant have put downward pressure on the Japanese yen, but it could represent a good deal for value-seeking investors.
As supply chains around the world regain momentum following a global vaccination movement in 2021, the Omicron variant has presented yet another speed bump: It is fueling the pessimism of Japan’s biggest manufacturers.
“Larger Japanese manufacturers are less optimistic about the coming months as uncertainty over the omicron variant tempers optimism, according to a Bank of Japan survey which likely downplays the level of concern,” Bloomberg Reports.
Why the pessimism? It appears that Japan hasn’t quite recovered from last year’s peak of the ongoing pandemic, according to market experts.
“The Bank of Japan’s latest Tankan survey indicated a patchy recovery … With growing concerns about the risks of the omicron variant, we expect the central bank to extend its program to support the Covid-19 fund in the – beyond its expiration in March “, noted economist Yuki Masujima.
Nonetheless, Bloomberg notes that the Tankan survey found the economy was on the mend despite hesitation in the last quarter (the first time in eight quarters). The survey also showed that large companies would increase their capital investments by 9.3%.
“Overall, the data shows companies are confident about the recovery,” said economist Atsushi Takeda of the Itochu Research Institute. “The large manufacturers have managed to maintain a high level of activity, and in particular with the capital expenditure, we note an improvement of the general tools testifying to the confidence.
Walk lightly, know the risks
With the data showing something of a push-pull dichotomy, it is best to tread lightly with respect to the Japanese Yen. One way to play is to confine the yen in the envelope of an exchange-traded fund (ETF) like the Trust Invesco CurrencyShares® in Japanese Yen (FXY), which is designed to follow the rate of the Japanese yen.
Investors can avoid the high price volatility that would result from trading the spot price on a forex platform. This is especially the case when the central bank (the Bank of Japan or BOJ) meets this week to decide how to proceed with the COVID stimulus measures.
“It will likely be difficult for the BOJ to completely complete the entire Covid funding program, but it is possible that it will start reducing the purchase of corporate bonds and commercial paper, as the Tankan of today continues to show that financing conditions remain favorable ”, noted economist Kazuma Maeda at Barclays Plc.
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