On Monday, the Japan's Cabinet office released factory output data that slumped from 7 percent to -1% (Month-over-Month) in December. This figure is worse than the forecast. 

Before, the economists had expected -0.8 percent. This situation was the first such decline in three months of this year.

Japan's slump in industrial production was triggered by a decline in car making after a surge in November. In addition, the shortage of semi-conductor chips also suppressed the Japanese automotive production.

It is especially at the end of 2021. Factory output falls among the capital goods makers, possibly affected by a shortage of the semi-conductor supplies in that country. 

The Productions are Based on Demands from China 

This condition shows the impact of chip raw material shortages which still persists and penetrates into other industrial sectors outside of automotive. That was said by Takeshi Minami.

He is a chief economist at Norinchukin Research Institute. The automakers in that country have been forced to ramp up production amid a rebound in demand from china's main market. 

However, a shortage of semi-conductor supplies means that the automotive manufacturers have to compete with electronics companies that are also increasing production.

It is especially the ones due to the recovering market demand. Meanwhile, the retail sales data also released this morning increased by 1.4 percent on an annual basis. 

USD / JPY Continues it’s Bullish Trend 

The figure was unable to meet economists' expectations for a 2.7 percent increase, and lower than the 1.9 percent increase in November. Nevertheless, the overall performance of the Japanese retail sector is fairly solid.

The cause is because it consistently rose for three consecutive months this year. This is supported by the strong market demand for general merchandise, food and beverages as well.

At the time this news was written, the USD/JPY pair moved in the range of 115.41 or strengthened by 0.19% from the daily Open price. These Prices continued the upward flows.

These are the situations that have been forming since last week. It was precisely when the Fed confirmed that they would raise the interest rates in March.

USD may Have it’s Best Position this week

The U.S. dollar index (DXY) could potentially close trading this weekend with the best performance over the past few months. There is a special cause to know.

After being spurred by the announcement of the results of the very hawkish FOMC meeting, the greenback is increasingly moncer following the release of United States GDP data yesterday. 

As the news was written, DXY had perched at the level of 97.39 – a high record since July 2020. The Expectations around a Fed rate hike are getting stronger.

A number of market participants began speculating about the chance of five or six "Fed rate hikes" this yea. That speculation is more than previous expectations of three to four. 

Inevitably, the USD rate strengthened rapidly. Meanwhile, some analysts began to warn to anticipate the possibility of a reversal in the longer period. 

USD Has More Rooms for a Rally

The reason is not only the potential for disappointment if the realization of a "Fed rate hike" in the coming months turns out not to be as aggressive as current forecasts, but also global macro dynamics.

The dollar is in a strengthening cycle and has room for further rally due to a support from the interest rate differentials and increased levels of market volatility. But this is the last stage of that movement.

As the global economy emerges from the worst COVID pandemic of the year, the market's focus will shift toward normalizing policy and growth outside the America. The best currency performance in the second half of the year is likely to emerge from outside the major countries.