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Yen firms as producer prices hold steady

The Japanese yen strengthened in morning trade on Monday after wholesale inflation held steady and despite a weaker than expected result for a popular proxy of capital spending.

Data showed Japan’s producer price index was flat month-on-month in May, slowing from April’s 0.2 per cent growth and weaker than the 0.1 per cent rise expected by economists.

That kept the year-on-year pace of wholesale inflation steady at 2.1 per cent in May, one-tenth of one percentage point below the consensus forecast.

Month-on-month, it is the weakest producer price inflation result since October, the previous bout of deflation, while the year-on-year rate remained steady at its strongest since November 2014.

Also closely watched are machine order data, traditionally regarded as a popular albeit volatile proxy for capital expenditure. Orders shrank 3.1 per cent month-on-month in April, down from March’s 1.4 per cent gain, and well below forecasts for 0.5 per cent growth.

Year-on-year, orders were up 2.7 per cent, turning higher from March’s 0.7 per cent decline, but well wide of the market forecast for 7.3 per cent growth.

Marcel Thieliant was relatively upbeat despite the pullback in machine order data, and said:

We wouldn’t read too much into the fall in machinery orders in April as the figures have not been a good guide to business investment recently. In fact, the rebound in capital goods shipments suggests that capital spending will continue to recover.

He added:

Machinery orders have not been a reliable guide to investment in machinery and transport equipment recently. For what it’s worth though, their current level still points to a continued recovery in business investment. We would put more emphasis on the rebound in “core” capital goods shipments, which also suggests that capital spending will recover further.

The Japanese yen was 0.1 per cent stronger at ¥‎110.18 per dollar in mid-morning trade and after three straight sessions of decline.