USD/JPY is quiet at the start of the week. In Monday’s North American session, the pair is trading at 109.67, down 0.09% on the day. In economic news, U.S banks are closed for a holiday. With no U.S or Japanese events on the schedule, traders can expect limited movement from the pair on Monday. On Tuesday, the Bank of Japan releases its rate statement.
Investors were greeted with weak data on Monday, as China released GDP numbers. The world’s second largest economy continues to expand, but GDP has been softening, pointing to an economic slowdown. China reported that GDP had slowed to 6.6% in 2018, marking its lowest level since 1990. GDP for the fourth quarter dipped to 6.4%, compared to 6.5% in the previous quarter. The soft GDP release comes on the heels of soft trade and manufacturing data. A decline in China could send the Japanese economy into recession, as the export and manufacturing sectors are heavily dependent on Chinese demand.
The Trump administration has threatened further tariffs if a deal is not reached by March 1, but a second round of negotiations between the sides is scheduled for the end of the month in Washington. Chinese officials will be under pressure to show more flexibility in the talks, in order to stem the economic bleeding.
The Bank of Japan is expected to keep its monetary policy unchanged on Tuesday. The economy has been showing modest growth, and weak inflation means there is little pressure to raise interest rates. Still, policymakers have major headaches, including the global trade war and further signs that the Chinese economy is slowing down. Japan’s export and manufacturing sectors have weakened, and if the global economy takes a downturn, Japan could be hit with a recession. A negative side effect to prolonged low interest rates is that financial institutions have seen their profits fall, forcing some of them to make questionable loans in order to recoup lost profits. The BoJ has acknowledged the problem, but is unlikely to change course anytime soon.