The yen was under some pressure during today’s Asian session as Japanese second quarter GDP contracted slightly more than anticipated by analysts. The initial estimate was a contraction of 6.8%, while the revised number showed a 7.1% annualized contraction. A worrying sign was that business investment contracted by a larger-than-initially-estimated 5.1% (-2.5% was the initial estimate). The economy’s weak performance was of course due to the sales tax increase on 1st April, but it is an open question now whether the economy can recover during the third quarter. This brought some more speculation about the Bank of Japan eventually deciding to increase its monetary stimulus. In other data about Japan, the country’s current account was also lower than expected at 416 billion yen (444 was expected).
Important Chinese data was also out today, showing exports in August doing slightly better-than-expected, but imports falling as a result of weak domestic demand. According to some analysts, domestic demand is weak due to a property slump in the country.
The pound fell to its lowest against the US dollar since November, retreating below the 1.62 level to fall to as low as 1.6166. The reason was a new poll that showed the pro-independence vote ahead before the September 18 Scottish independence referendum. An independent Scotland would usher in uncertainty about the UK economy and in such a case, the Bank of England could delay hiking up interest rates.
Following the negative August nonfarm payrolls surprise (142 thousand net new jobs versus 225 expected), the US dollar steadied against other majors. Some speculated that the Federal Reserve would now be more cautious in when to raise interest rates, but most saw the data as a one-off sign of weakness that would not sway the Fed. Hence the data is not enough to stop the dollar’s rally but could lead to some consolidation.