Japanese yen rally continues as GDP ticks higher

The Japanese yen continues to make inroads against the US dollar. In Monday’s European session, USD/JPY is trading at 146.54, down 0.35%. The yen notched its fourth straight winning day on Friday and surged 2% last week.

Japan’s GDP revised upwards to 0.1%

Japan’s GDP for the fourth quarter was revised upwards to 0.1%, compared to -0.1% in the preliminary estimate and following a 0.8% decline in the third quarter. This was significant as the small gain in Q4 means that the economy narrowly avoided a recession, which is defined as two consecutive quarters of negative growth.

No recession is good news, but Japan’s economy is sputtering. The economy barely grew in Q4 and missed the market estimate of 0.3%. Domestic demand remains weak as nervous consumers are holding tight to the purse strings. Private consumption declined 0.3% in the fourth quarter, slightly weaker than the market estimate of 0.2%.

Will BoJ pivot at the March meeting?

All eyes are on the Bank of Japan meeting on March 18-19, with investors on the alert for signs that the central bank plans to phase out its ultra-loose monetary policy. Senior BoJ officials have made hints that changes are coming to the Bank’s ultra-loose monetary policy. The BoJ is unlikely to lift interest rates out of negative territory, but could show a shift in policy by ending its yield curve control policy. A rate hike, which would likely send the yen sharply higher, isn’t expected before June.

In the US, the February employment report was mixed. Nonfarm payrolls rose 275,000, easily beating the market estimate of 200,000 and the downwardly revised 229,000 in January. However, the unemployment rate surprised by climbing to 3.9% after holding at 3.7% for three straight months, which was also the market estimate. This was the highest unemployment rate in two years and points to softer labor market conditions. The rise in the unemployment rate has raised the odds of a rate cut in June by the Federal Reserve. Currently, the likelihood of a cut is 73%, compared to 64% just one week ago, according to the CME’s FedWatch tool.

USD/JPY Technical

• There is resistance at 147.23 and 147.96
• 146.33 and 1.4560 are providing support

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