Yen weakens sharply as downward trend resumes

A record current account deficit has seen the Japanese yen slump against the dollar today.

The Japanese yen had a torrid time in 2013, depreciating significantly as a result of central bank action. After a few days of gains versus the dollar, yen weakening has been resumed today after data released by Japan’s Ministry of Finance late yesterday showed that the country’s current account deficit expanded to Y592.8 billion in November from the Y127.9 billion seen in October.

This is the largest Japanese deficit ever recorded, driven by a large jump in the value of imports, which rose 22.1% year-on-year, out-stripping the 17.6% rise seen in exports. It was also far larger than had been anticipated by economists polled by Bloomberg.

Sizeable trade deficits should, in theory, pressure a nation’s currency in the long run, and the dollar has progressively strengthened against the yen as the trading day has gone on. By mid-afternoon in New York, USD/JPY had climbed 1.14% to 1.0416.

The Finance Ministry in Tokyo released a separate report earlier today showing that Japanese money managers bought a record amount of dollar-denominated bonds in November, as the loose monetary policy of the Bank of Japan is causing fund managers to look overseas for better returns.

The dollar was also supported by the 0.2% expansion in retail sales reported for December. While there were downward revision to prior months, the robust nature of December’s sales seems to match the strength of other economic indicators, Friday’s labour report aside, raising hopes for fourth-quarter GDP and appears to pave the way for more tapering by the Fed, which should support the dollar further.

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