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Japanese Yen Shrugs off Soft Manufacturing Data

The Japanese yen is almost unchanged in the Tuesday session, after posting considerable gains on Wednesday. In North American trade, USD/JPY is trading at 113.26, down 0.02% on the day. On the release front, Japanese manufacturing data disappointed. In the U.S., PPI came in at 0.1%, above the estimate of 0.0%. Core PPI dropped to 0.3%, but beat the estimate of 0.1%. On Tuesday, the U.S releases CPI reports.

Japanese indicators continue to have a bad week. The BSI Manufacturing Index slipped to 5.5 in the third quarter, down from 6.5 in the second quarter. Preliminary Machine Tool Orders nosedived, with a reading of -16.5 percent. This was the sharpest decline since July 2016. Earlier this week, Final GDP in the third quarter declined 0.6%. This was the second decline this year. On an annualized basis, the economy declined by 2.5% in Q3, after a gain of 2.8% in the second quarter. This was the worst downturn since 2014.

Of particular concern, the capital expenditure component of GDP fell 2.8%, much weaker than the estimate of 1.6%. This capex slump, which could weigh heavily on growth and inflation, comes at a particularly inopportune time, with the U.S-China trade war in full swing. This has taken a bite out of Japanese exports and the manufacturing sector, as businesses that deal with the U.S or China are facing higher tariffs. A weaker eurozone economy has led to softer European demand for Japanese exports. Making matters worse, domestic demand remains fragile, as nervous consumers continue to hold tightly onto their purse strings.