The yen dropped more than a big figure on Monday after gaining traction in the wake of the Paris attacks. Monday’s softer than expected GDP data that showed that the Japanese economy contracted for a second consecutive quarter which is considered a recession eroded the value of the Yen. With the Fed poised to raise rates at its December Fed meeting and the Bank of Japan closing in on an expansion of its QE program, the continued divergence of these monetary policies should drive the dollar higher.
Japan’s GDP tumbled 0.8% in Q3, which was a larger drop than anticipated as economists expected an 0.3% decline. However, Q2 GDP was upwardly revised to a 0.7% drop from a 1.2% decline. The more pronounced than anticipated drop in Q3 GDP came alongside a 1.3% plunge in business spending that followed a downwardly revised 1.2% drop in Q2.
The USD/JPY tested the 10-day moving average at 122.45, before bouncing and generating a bull flag pattern. Target resistance on the currency pair is seen near the November highs at 123.60. Momentum is positive with the MACD (moving average convergence divergence) index printing in positive territory with an upward sloping trajectory which points to a higher exchange rate.