Japanese yen drifting after GDP slips

The Japanese yen has started the week with a whimper. USD/JPY is currently trading at 113.88, up 0.10% on the day.

Japan’s GDP underperforms

Japan’s economy performed poorly in the third quarter. GDP contracted by 3.0% y/y, much worse than the consensus of -0.7%. The health restrictions imposed due to Covid were the primary driver of the weak GDP reading. The slump in economic activity was exacerbated by supply-chain problems which have led to shortages of chips and other products. Investors took the negative news in stride, as the yen is flat on Monday. The markets have seen health restrictions come and go and are paying more attention to the new fiscal package that the Kishida government will unveil at the end of the week.

Kishida is planning to introduce stimulus measures to boost the economy and can point to negative growth in Q3 as justification for providing a stimulus package in order to kick-start the economy. The Nikkei newspaper reported on Friday that the package would exceed USD 350 billion. The government is hoping that the stimulus will boost business and consumer sentiment and encourage greater investment and spending.

In the US, it’s a completely different story as inflation is surging and the economy is expanding. The job numbers point to many unfilled openings as the demand for workers continues to outstrip supply. JOLT job openings remained high in September at 10.44 million, lower than the August read of 10.62 million but above the consensus of 10.30 million.

In addition to high inflation, inflation expectations have hit multi-year levels, climbing to 4.9% in October. Inflation expectations can translate into actual inflation, so the Fed will have to keep a close eye on this indicator.

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USD/JPY Technical

• There is resistance at 114.58. Above, there is resistance at 115.22
•  There is support at 112.08, followed by support at 113.01

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