On Wednesday, the Japan's Ministry of Economy, Trade and Industry released the Industrial Production data. That recorded the worst monthly decline in a year. 

Unabashedly, the Industrial Production data for May slumped by 5.9 percent on a monthly basis (MoM). It was far worse than the forecast declines of 2.4 percent.

Meanwhile, the year-on-year data is still growing by 22 percent in May. It increases from the growth of 15.8% in a period before. Unfortunately, that data cannot become the reference. 

It is because the increase happened is caused by the statistic adjustment from the significant decline last year. That is especially at the beginning of the COVID-19 pandemic globally.

The Cause of the Declining Japan's Factory Output

Underlying japan's factory output on a monthly basis was a sharp decline in auto and automotive component production of 19.4 percent. This problem is caused by the scarcity of semi-conductor raw materials.

That is especially for the chip making as well as decreased machine manufacturing. Nevertheless, the government maintained a positive outlook for Japanese factory production this year. 

The attitude of optimism refers to the results of the manufacturer's survey conducted by the relevant Ministry. In fact, a 9.1 percent rebound is expected in June period. 

Then it will be followed by a 1.4 percent increase the following month. Meanwhile, that condition makes the USD / JPY is not moving too much. That can be seen from the data. 

Consumer Spending Slows, Japan is still Optimistic

The released of Japanese Factory Output data yesterday morning had no significant impact on the movement of the Yen against the Dollar. The USD/JPY pair is still moving in a limited range.

 It is now trading in the range of 110.50, down 0.01 percent from the daily Open level. Japan's economy is expected to grow at a slower pace in the second quarter. 

The reason is that it is weighed down by the slump in consumer spending that occurred in April and May. It is especially when Japan imposed social restrictions several times ago. 

Sluggish Japanese consumer spending is reflected in the release of monthly Retail Sales data that is still negative in recent months. It triggers the opinion from several parties there. 

The Economy in Japan may be recovered 

Despite the tattered economic conditions, Japanese Economy Minister Yasutoshi Nishimura predicts that the economy will return to pre-COVID levels by the end of the year until the first quarter of next year

The U.S. dollar strengthened to a one-week high due to the threat of a new wave of Delta strain Corona virus. As the news was written, the Dollar Index fell 0.27% to 92.12.

For your information, its the highest level since June.  Elsewhere, the spreading rumor about the delta strain coronavirus makes the market is leaving the asset with a high-risk profile. 

Some countries in Asia decided to rendering their social restriction. Some of them are extending the lockdown decision in their area to cut the spread of the coronavirus. 

The New Rules in Several European Countries

In Europe, Spain, and Portugal, the governments impose entry bans for unvaccinated migrants from the UK. In turn, economic activity will again be limited by these restrictive policies.

There has been a new layer in the uncertainty of the global economic recovery. A number of countries such as South Africa, Australia, and parts of Asia were forced to re-impose lockdowns or restrictions due to delta variants.

They move on from the quite sure and stable background in the second quarter. It goes to the uncertainties in the next quarters. The market must believe that situation. 

In fact, the Greenback's correlation with market risk interest in general has slackened as global COVID-19 cases have shrunk. Market attention is also more focused on the timing of the fed's massive stimulus.