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Japan's Business Activity Affected as Services Sector Sees Sharp Contraction

Japan’s Business Activity Affected as Services Sector Sees Sharp Contraction

Posted Monday, August 23, 2021 by
Aiswarya Gopan • 2 min read

The Japanese manufacturing sector experienced a slowdown in growth during the month of August while the services sector contracted at the fastest rate seen in over a year amid the latest resurgence in COVID-19 cases across the nation. The au Jibun Bank Flash Japan Manufacturing PMI dipped to a seasonally adjusted reading of 52.4 for August from 53 in the previous month, but held above the 50-threshold indicating expansion.

Manufacturing activity continued to expand despite Japan reeling under the rise in coronavirus cases due to the delta variant, receiving a higher number of total orders as well as export orders through the month. However, firms faced pressure on account of the supply chain disruptions, especially because of the global semiconductor shortage.

On the other hand, the au Jibun Bank Flash Services PMI fell to a seasonally adjusted 43.5 in August from July’s final reading of 47.4, well under the 50-threshold indicating contraction. This was the fastest pace of contraception the sector has experienced since May 2020, at the height of global lockdowns. The severe contraction came on the back of Japan extending the state of emergency measures across most parts of the country.

The poor performance of the services sector brought down Japan’s composite PMI to 45.9 in August from 48.8 in July. According to Usamah Bhatti, economist at IHS Markit, “Japanese private sector businesses noted that the recent surge in COVID-19 cases related to the Delta variant had dampened prospects in the latest survey period, as firms indicated the softest degree of optimism regarding the year-ahead outlook for one year. That said, positive sentiment was solid overall as vaccination rates continued to increase markedly.”

Impact on the JPY

While this data is bad for the Japanese currency and should drive it to trade bearish, the Japanese yen continues to enjoy support as a safe haven currency in global markets amid the cautious mood towards the spread of the delta variant worldwide.

USD/JPY

This sentiment has kept the USD/JPY trading mostly steady as both currencies enjoy safe haven status among investors lately over worries that global economic recovery could potentially be hampered by the latest wave of infections across several countries. At the time of writing, USD/JPY is trading around 109.85.

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