Economics of the JPY

The Yen's Presence Globally

The Japanese GDP (Gross Domestic Product) generally ranks among the top 3 – 4 globally. Their currency, the Yen, is the primary Asian representative in the off exchange retail foreign currency market.

The Bank of Japan is the stabilizing force behind the Yen and is central to Japan's financial infrastructure. Some of the relevant economic indicators to the Yen are released directly through the Bank of Japan, while others may be released from private data analysis firms. Each of the economic indicators listed and described below have the potential to affect the price and stability of the Yen upon their release. There are other indicators that are directly relevant to the Yen that do not appear in the list below.

The economic indicators outlined below can potentially move the price of any currency pair the Yen is involved with. These currency pairs include:

Some of the below reports are commonly released by most economic powers around the globe, others are specific only to Japan. The reports are listed in alphabetical order, for more on the report and its strength ranking take a look at each individual indicator description below. For the date and time of the next release for each report please browse our current economic calendar.

Reports Listed in Alphabetical Order

Bank of Japan Outlook Report

The BOJ (Bank of Japan) publishes a semi-annual report in April and October that outlines the Bank's stance and feelings on economic issues. The report includes an overall gauge of the economy, a look at inflation (which ultimately relates to interest rates), and a detailed look at economic policy. Because the report is semi-annual its outline projections are for the coming six months.

Core CPI

CPI stands for Consumer Price Index, a fundamental indicator that establishes the rate of price inflation or price increase as seen by consumers when purchasing goods and services. Core CPI as released by the Japanese government excludes fresh food items from collected data, as they are considered more volatile and can thus skew overall inflation trends. With the exclusion of volatile food items, Core CPI is considered a more reliable calculation of CPI. The Consumer Price Index is touted as a timely and detailed inflation indicator. Typically, it is assumed that a rising trend in CPI will positively impact a nation's currency. Central banks are most concerned with price stability. If inflation rates are continually rising interest rates will likely be increased in an effort to bring prices back down. Globally, increased interest rates are said to entice foreign investment flows, which would of course, in turn, increase the demand and the standing of a nation's currency on a global scale. CPI is a well respected fundamental indicator and is ranked highly in terms of its potential impact in the market.

Core Machinery Orders

Core Machinery Orders is a measurement of the sum value of new orders for machinery related products placed with machine manufacturers. An increased trend seen in this indicator is a sign of a strengthening economy and thus a strengthening currency. An increase in orders placed from manufacturers implies that the manufacturing industry is poised for expansion.

GDP y/y

Gross Domestic Product is considered by most the broadest, most comprehensive barometer of a country's overall economic condition. It measures the sum of all market values on final goods and services produced in a country (domestically) during a specific period of time. A rising trend seen in a country's GDP of course indicates that the economy of said country is improving; as a result foreign investors are more inclined to seek investment opportunities within that nation's bond and stock markets. It is not uncommon to see interest rate hikes as a follow-up to a rising GDP, as central banks will have an increased confidence in their own growing economies. The combination of a rising GDP and potentially higher interest rates can lead to an increase in demand for that nation's currency on a global scale.

GDP Deflator q/q

Aside from basic GDP (Gross Domestic Product) figures some governments also releases GDP deflators. The GDP Deflator report publishes the difference between nominal and actual GDP. The report takes a measurement of annualized quarterly inflation rates as applicable to all economic activity.

Industrial Production

Industrial production is a measurement of the cumulative dollar amount of product produced by factories and other industrial production facilities. Increased levels of production would of course signify a strengthening economy, thus an increased trend seen in this indicator should positively affect the position of a nation's currency. Industrial production is closely tied with personal income, manufacturing employment and average earnings in that its quick reaction to the business cycle often allows for a preemptive leading look into these indicators.

Interest Rate Statement

Perhaps at the core of all economic indicators are those that relate to interest rate decisions. In fact, most would argue that other economic indicators are used by the average trader as nothing more than a means to anticipate pending interest rate changes. The Bank of Japan's (BOJ) Monetary Policy Committee publishes its interest rate statement monthly. The bulk of the statement includes an explanation of the various economic factors that influenced the change in rates (or lack thereof) for the nation's short term interest rate, also referred to as the "overnight call rate". The report will also include insight as to what the next interest rate decision might be. Short term interest rates are of monumental importance to traders in any of the major financial markets. This is due to the fact that high interest rates attract foreign investors who are seeking the highest possible return in exchange for the lowest possible risk. Central banks are most concerned with price stability. If inflation rates are continually rising interest rates will likely be increased in an effort to bring prices back down. Globally, increased interest rates are said to entice foreign investment flows, which would of course, in turn, increase the demand and the standing of a nation's currency on a global scale. Seasoned economists understand the relationship between inflation and interest rates, namely that inflation tends to precede higher interest rates, which ultimately increases the global demand for a nation's currency.

Manufacturing PMI

PMI stands for Purchasing Managers Index. Before the report is published purchasing managers are surveyed on the present situation of economic factors relevant to their position, factors such as new orders, inventories, production, employment, etc. Traders tend to keep an eye on this indicator because it tends to lead (leading indicator) into data that will later be released. This is because purchasing managers have an early view at the performance of their company. The indicator uses a reading of 50 to measure expansion, or the lack thereof. A reading above 50 would indicate economic expansion.

Monetary Base

This indicator is a measurement in changes seen annually to Japan's total currency in circulation. This would include current account balances and of course banknotes and coins. Essentially the report exposes the total amount of additional currency being issued by the Bank of Japan each year. When the monetary base increases in the course of a year, or over the course of a few years, the result is usually a higher rate of inflation for the Yen.

Overall Household Spending

Overall household spending measures the total amount of consumer expenditures on household goods and services. Rising trends seen in this indicator tend to strengthen the position of a nation's currency. Quite obviously, an increase in consumer spending will positively impact an economy. Important to note is the correlation between consumer spending and GDP (Gross Domestic Product), namely that consumer spending accounts for approximately half of GDP, which of course is considered a very key economic indicator.

Retail Sales

Retail Sales is a measurement of the total value of retail sales in a given period. Because a large portion of consumer spending is accounted for in this indicator and because this indicator is typically the first of the month to report numbers concerned with consumer spending, traders tend watch this indicator closely. Retail Sales gives traders a good look at the consumer spending situation, which of course, will account for approximately half of GDP (Gross Domestic Product). In other words, traders watch Retail Sales because of its lead into consumer spending, which, in turn, is important because of its lead into GDP. Rising trends seen within this indicator should positively affect the standing of a nation's currency.

Tertiary Industry Activity Index

This indicator gathers a measurement of spending related changes seen in the services sector. Increased spending seen in this sector may be representative of increased employment rates, which in theory should precede a hike in consumer spending; thus a positive trend seen in this indicator should positively affect the economy of a nation and its currency.