USD/JPY: yen slides as weak PMI and exports point to a more severe recession

The USD/JPY pair rose after Japan released weak provisional trade number for April. The market also reacted to the weak manufacturing and service PMI data from the country.

USD/JPY

Japan manufacturing PMI disappoints

Japanese manufacturing is suffocating as the coronavirus pandemic and the state of emergency take a toll on companies.

The closely watched Purchasers Manufacturing Index, compiled by Markit and Jibun Bank, declined to 31.7 in May from 34.7 in April. That was the worst reading of the PMI since the last financial crisis. This figure marked the eleven straight months that most manufacturers reported a decline in output.

The flash manufacturing PMI is usually released a week before the official data. According to Markit, it includes between 85% and 90% of the total.

The PMI data is compiled by looking at eight key indexes. The output index, new orders, new export orders, and backlogs of work reported a more substantial decline in May. On the other hand, the employment saw no change from the previous decline while output and input prices experienced weaker deflation in April. The index of future output remained weaker negative.

Meanwhile, other sub-indexes of the PMI also weakened. The stocks of purchases had a stronger decline while stocks of finished goods declined.

The supplier of delivery times saw weaker lengthening. In normal times, such a figure is usually a positive sign of the economy because it shows that suppliers are extra busy. However, the delays this time are mostly because of the disruptions of supply chains.

In the same month, as with Australia, the flash services business activity index improved from 21.5 to 25.3.  In a statement, Joe Hayes of Markit said:

“Taking the April and May PMI surveys together, we see that both are indicative of GDP falling at an annual rate in excess of 10%. It is clear that the economy is going to contract for a third successive quarter, with the hit in Q2 likely to be potentially as large as 20% of the previous year.”

Japan exports and imports sink

The USD/JPY pair also reacted to weak trade numbers from Japan. According to the Ministry of Finance, the country exported goods worth more than ¥5.2 trillion, 21.9% below the April 2019 imports of ¥6.64 trillion. Analysts polled by Reuters were expecting the exports to fall by 22%.

In the same month, imports declined by 7.2% to ¥6.13 trillion from the previous ¥6.6 trillion. That led to a ¥930 billion increase in surplus.

The biggest declines in exports were in North America. Exports to the United States and Canada declined by 37.8% and 57% respectively. In Asia, exports to China declined by 4.1% while to Western Europe; they declined by 30.4%. According to the data, exports to Germany, UK, and France declined by 22%, 48.1%, and 36% respectively.

Meanwhile, imports from China increased by 11%, while those from the US increased by 1.5%. Those from Western Europe declined by 11.5%.

Analysts expect the numbers for May to be weaker because the country was in a state of emergency.

USD/JPY technical outlook

The USD/JPY pair is trading at 106.63. On the daily chart, this price is above last week’s low of 106.00. The price is slightly below the 61.8% Fibonacci retracement level and is along the 50-day exponential moving average. The pair is also forming an extended bearish flag pattern, which means that it will likely breakout in the lower side.