USD/JPY – Yen unfazed by dismal Japanese GDP

Japan suffers its worst GDP decline in 40 years

The week started on a sour note for Japanese fundamentals, with the release of Japan’s GDP on Monday morning. As expected the second quarter was abysmal. Preliminary GDP dropped 7.8%, worse than the estimate of 7.5%. This marked the sharpest drop on record. On an annualized basis compared to Q1, GDP plunged by 27.8%. Despite, the awful numbers, the yen has actually recorded slight gains on Monday. Investors had expected weak numbers for GDP, and the actual releases were only slightly worse than the forecasts. With major economies across the globe posting sharp declines in the second quarter, investors are showing a thicker skin, as the Q2 readings failed to shake up the financial markets or the USD/JPY exchange rate.

At the same time, the global economy has been severely hampered by the Covid-19 pandemic, and this has had a significant impact on Japan’s economy, which is heavily dependent on its export sector. The GDP decline in Q2 was the third successive decline in GDP – two straight declines signify a recession. The yen managed to dodge a bullet on Monday, but if key numbers continue to point downwards, the yen will be hard-pressed to keep pace with the US dollar.

USD/JPY Technical Analysis

USD/JPY is trading at 106.23, down 0.35% on the day. The pair was down slightly in Asian trade and posted further losses in the European session

• USD/JPY has broken below support at 106.33. The next support line is at 106.03, just above the symbolic 106 level
• 106.68 is the next resistance line. This is followed by resistance at 107.28
• USD/JPY continues to put pressure on the 10-day MA. If the pair breaks below this line, it would be a bearish signal for the pair

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