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USD/JPY Whipsaws, Despite Weaker than Expected 3Q GDP
Posted On 09 Dec 2014
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The USD/JPY whipsawed creating choppy trade after touching a fresh 7-year high on Monday. This comes despite Monday’s worse than expected third quarter GDP revision, which showed that the worlds third largest economy continues to shrink.
Japanese third quarter GDP growth contracted 1.6% in the preliminary print, while Q2 was revised lower to a 7.3% plunge from -7.1% previously. Data were much weaker than the small rebound anticipated, as the April tax hike seemed to have lingering effects on consumption and investment. With Japan’s economy unexpectedly dropping back into a technical recession, PM Abe and the ruling party will have a difficult time implementing the second tax hike scheduled for late next year.
Japan ministers were upbeat about capex despite the downward revision to GDP, evident in machinery orders and the Tankan survey. Although wages might continue to rise, which will help the economy ride out future tax hikes, the decline in oil prices is likely to offset the rise in import prices due to the weak yen. The Finance Minister Aso chimed it that he didn’t see Japan in recession and plans to stick with aim of a primary budget surplus in FY2020/21.
During the balance of the week, economic data include the December MoF business survey which is scheduled for Wednesday and is forecast to decline to 10 from 11.1. November consumer confidence also on Wednesday is expected to deteriorate to 38.5 from 38.9. Meanwhile, November domestic CGPI has likely cooled to 2.6% year over year from 2.9%. The October tertiary industry index is also on tap for Thursday and is seen falling 0.5% month over month from the prior 1.0% increase. Revised October industrial production scheduled for Friday is seen steady at 0.2% year over year.
The exchange rate seemed to hold support near the 10-day moving average at 119.34. Momentum as reflected by the MACD (moving average convergence divergence) index has flattened. The RSI has moved out of overbought territory, and is currently printing a reading of 69, which is just below the overbought trigger level of 70.
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