Dollar softens in Asia after weak Japan GDP

AP FILE PHOTO

TOKYO – The dollar retreated Monday morning as investor spirits were deflated by weaker-than-expected Japanese growth data, with markets now looking to key US economic figures this week.

In morning Tokyo trading, the greenback stood at 96.05 yen, softening from 96.24 yen in New York Friday.

The euro bought $1.3336 and 128.28 yen, nearly flat from $1.3338 and 128.35 in US markets.

Traders sold the dollar after Tokyo said the world’s third-largest economy grew by 0.6 percent in the April-June period from the previous quarter, slower than a revised 0.9 percent increase between January and March. The latest figures missed analyst expectations of 0.9 percent growth in the quarter.

The weaker-than-expected figures raised speculation that the government may hold off a series of sales tax hikes aimed at doubling the rate to 10 percent by 2015.

The move is widely seen as critical to efforts to bring down Japan’s eye-watering national debt, the worst in the industrialised world at more than twice the size of the economy.

After the GDP figures were released, the dollar slumped to 95.92 yen before regaining some ground.

“The figure raises the possibility that the Japanese government may push back the planned hike in consumption tax,” Kengo Suzuki, forex strategist at Mizuho Securities, told Dow Jones Newswires.

“And this could have a negative impact on the government’s plans for fiscal consolidation,” he added.

However, Suzuki expected the preliminary GDP data to be revised upward when finalised figures are published next month.

The fresh data showed the pace of expansion also slowed on an annualised basis with a 2.6 percent increase, from a revised 3.8 percent jump in the first quarter. Annualised data show how the economy would grow if the quarterly performance was stretched across the full year.

“I expect the figures to be revised upward to around 3.0 percent (on an annualised basis),” Suzuki said.

“But for now, the weaker-than-expected figure could weigh somewhat on the (dollar/yen) pair.”

US economic figures including retail sales and industrial output are due out this week as markets look for clues as to when the US Federal Reserve will start rolling back its huge stimulus drive.

A pull back on the programme would mean fewer dollars in the financial system, boosting demand and the greenback’s value.