USD/JPY rises up after GDP downgrade

The Japanese yen has dropped below the 161 line on Monday. The yen is trading at 161.39 early in the North American session, down 0.35% on the day.

Japan’s GDP revised sharply lower

Japan revised its first-quarter GDP report to -2.9%, y/y, sharply lower than the initial reading of -1.8%. On a quarterly basis, GDP was revised lower to -4.0%, compared to -3.7% in the fourth quarter. The downward revision was due to corrections in construction orders. The rare unscheduled revision will dampen hopes for a rate hike at the BoJ’s July meeting and points to a bumpy economic recovery.

At the same time, Japan’s Tankan quarterly survey indicated that business confidence had improved and corporate inflation expectations edged higher. These factors support a rate hike in the near term, which leaves BoJ policy makers in a bit of a quandary regarding rate policy due to the conflicting data.

What may tip the scale in favor of rate hike, perhaps as soon as July, is the significant slide of the Japanese yen. The yen is trading closes to 38-year lows against the US dollar and has plunged a staggering 14% this year. The BoJ intervened twice in the currency market in late April and early May and purchased some $61 billion worth of yen, but that proved to be only a stopgap measure as the yen has surrendered all of the gains which followed the interventions.

In the US, the economy has performed well but the manufacturing sector has posted only one month of expansion since November 2022. The ISM Manufacturing PMI is projected to improve to 49.1 in June, compared to 48.7 a month earlier. The 50 level separates contraction from expansion.
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USD/JPY Technical

• USD/JPY pushed above resistance at 160.82 earlier and is testing resistance at 161.37. The next line of resistance is 162.38
• There is support at 160.36 and 159.81

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