Dec 07, 2023

EURJPY has GDP growth data ahead this week, with further downside possible. 


EURJPY – Daily Chart

EURJPY trades at 158.53 with an upside trendline at the 158 level. Further weakness could be steep if it does not hold. Support below that level would lie around the 155 to 156 area. 

The data will not be the first Japanese economy or Europe project. The European GDP figure is a 3rd estimate and is expected to come at -0.1%. The Japanese GDP is expected to be -2.1%, down sharply from 4.5% in the second quarter. 

Despite that, the recent bets against the Japanese yen are slowly unwinding with talk of an end to deflation. After decades of deflation, Japan’s economy is finally turning a corner. Reuters said that banks are having to re-educate staff in a higher-rate environment. 

The industry has always suffered as the central bank’s massive stimulus affected earnings. Large banks were forced to expand overseas and invest in complex financial products in a hunt for yields. 

The last time Japan ended zero interest rates was in 2006, “so for most of our front-line bankers, this is the first time to deal with clients amid rising rates,” Masahiro Minami, CEO of Resona Holdings, said. “You have to stand back and forget next year – just think about the next five years,” he added. 

For the currency market, it also means that bets against the yen may have stopped. The yen was getting very close to levels where intervention was expected, and a cap was in place. 

The EURJPY has now fallen over 600 pips from the high, and as Minami said, you have to forget next year and think further out.  

In his late November speech at the Japan National Press Club, former Vice Finance Minister Eisuke Sakakibara said, “A strong yen is in our national interest.” “If we still want to do all those things, something else has to give,” he said. 

It may take much work as the country has to exit years of stimulus and a vast government debt reliance. Japan’s economy is now reaching a historic path change, which could affect the Nikkei and the yen for years.

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