Dollar set for recovery despite sharp fall against yen

DIANE COYLE

Economics Correspondent

The dollar suffered a sharp setback yesterday in its recovery against the yen after it failed to breach the 100 barrier in the wake of the failure of a Japanese bank and credit union on Wednesday. But the feeble state of the Japanese economy was confirmed by new statistics, suggesting the dollar's reversal against the yen will be temporary.

Another cut in Japan's official discount rate is considered likely after the Ministry of Trade and Industry said yesterday its survey of manufacturers suggested industrial output will fall 1.9 per cent in the July-September quarter. This prospect will help keep the yen weak.

Output fell 2.4 per cent in July, its fourth successive monthly decline. MITI expects a 4 per cent rise in August but a 4.3 per cent fall in September. If this occurs, it will be the biggest drop in production in more than seven years.

Additional gloom was furnished by a fall of 11.2 per cent in housing starts in the year to July. This was the fifth successive month of decline.

Economists believe the Japanese authorities are now determined to hold the yen down and stimulate the moribund economy. "The recent weakness of the currency, along with the rebound in the stockmarket, has pulled Japan back from the brink of a recession that would have caused a financial meltdown," said Gerard Lyons, chief economist at DKB International. He said any sign of a sustained recovery in the yen would trigger a cut in the discount rate from its current record low of 1 per cent.

Statistics on the US economy painted a mixed picture yesterday. New orders for manufactured goods fell 1.3 per cent in July - far more than expected - with the weakness spread over a wide range of industries. The Chicago purchasing managers' index, one of the most important regional indicators, fell to 49.3 last month from 49.7 in July. A level below 50 is taken to point to a slowdown.

But there were fewer than anticipated new unemployment claims last week, with the total steady at 349,000, and personal incomes grew by a faster than expected 0.7 per cent in July.

Today's job figures for August will be decisive. "A strong report will definitely unwind expectations of further cuts by the Fed, and crystallise sentiment on the dollar," said Adrian Cunningham, an analyst at UBS.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss