Aug 15, 2023

The USD/JPY exchange rate is likely to be influenced by the release of Japanese gross domestic product (GDP) data prior to Tuesday’s trading session.


USDJPY – Daily Chart

The recent rise in the USDJPY exchange rate has pushed the greenback above the 145 level. However, if Japan’s economy improves, the USDJPY could pull back.

According to a Reuters poll of economists, Japan’s economy is projected to expand at an annualised rate of 3.1% in the April-June quarter, marking the third consecutive quarter of growth. Despite slowing global demand, the country has seen some resilience in exports.

The increase would come after a 2.7% rise in the first quarter, with a quarter-to-quarter expansion of around 0.8%.

Shinichiro Kobayashi, an economist at Mitsubishi UFJ Research, said that the data will show that Japan’s economy is recovering moderately, with consumption and capital expenditure maintaining momentum. Capital expenditure is expected to have grown 0.4%, while private consumption is expected to have edged up 0.1%, slowing from a 0.5% gain.

Ryutaro Kono, an economist at BNP Paribas, said that consumption has been recovering, mainly in the services sector as the economy has reopened. However, the recovery may have reached its peak as rising inflation puts a strain on real income.

Rabobank strategists have lowered their forecast for the yen against the US dollar, with a three-month view near the current 145. Over the longer term, they expect the yen to rally to 140 in nine months and 135 by the end of 2024. The prediction is based on an easing of the Federal Reserve’s monetary policy.

According to analyst Jane Foley, the market’s movements suggest that the Bank of Japan (BoJ) is likely to maintain its current dovish monetary policy stance.

Foley said that the Bank of Japan’s July policy adjustment messages were difficult to interpret.

The Bank of Japan was displeased with the strong dollar in 2022, intervening at 150, which could limit any further gains from the current breakout. The United States economy is expected to release retail sales on Tuesday, August 14, with an increase of 0.4%, higher than the expected 0.2%.

It will be interesting to see how the yen performs in light of the current concerns about the Chinese property market. The Japanese currency often rises as a safe haven in times of trouble in Western markets, but it remains to be seen how it will perform when trouble is closer to home.

Chinese blue chips were hit hard after Country Garden’s shares fell more than 12% to all-time lows following the suspension of trading in 11 of the company’s onshore bonds. Additionally, state-backed developer Sino-Ocean missed interest payments of US$20 million. The financial troubles added to fears that a hoped-for recovery in the country’s property sector may not emerge as a growth driver.

“Country Garden’s suspension of onshore bonds suggests a possible restructuring,” said Raymond Cheng, managing director of CGS-CIMB Securities. “They may have suspended trading to prevent the release of any sensitive or insider information, which could lead to market speculation and jeopardise any restructuring efforts.”

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