USD/JPY shrugs after weak Japanese numbers, Japanese GDP next

• Japan’s consumer spending and income falls in April
• Ministry of Finance sends warning about weak yen

The Japanese yen is steady on Tuesday. In the European session, USD/JPY is trading at 139.81, up 0.18%.

Japan’s numbers weaker than expected

Japanese data disappointed on Tuesday. Household spending plunged 4.4% y/y in April, down from the March reading of -2.3%, and below the consensus of -0.9%. Average cash earnings for April fell to 1%, following an upwardly revised 1.3% gain, and just above the 0.9% consensus. There are big expectations for the first-quarter GDP release on Wednesday. GDP is expected to hit 1.9% y/y, after a -0.1% reading in Q4 2022. A strong reading will be a welcome sign that the Japanese economy is back on track.

The markets are keeping a close eye on the exchange rate. The yen fell below the key 140 line on Monday after breaching that level in late May for the first time since November. The yen has declined around 7% since February 1st, and the downswing triggered a warning from the Ministry of Finance (MOF) last week.

The MOF warned that it would intervene if needed and said that “excessive moves aren’t desirable”. The language was not as sharp as when the MOF intervened in September 2022, blindsiding the markets and sending the yen sharply higher. The MOF appears to be content with a dose of verbal intervention, but if the yen falls closer to 145, concerns will grow that the MOF could intervene in order to prop up the yen.

US Services PMI dips

In the US, ISM Services PMI for May surprised on the downside. The markets expected the PMI to improve from 51.9 to 52.2, but instead, it dropped to 50.3, pointing to stagnation. The decline is another signal that the Fed’s aggressive rate-tightening cycle is cooling is dampening business activity, which has continued to expand despite Covid, high inflation and rising interest rates.

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USD/JPY Technical

• There is weak resistance at 1.3979.  Above, there is resistance at 141.11
• There is support at 138.64 and 137.93

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