- The Japanese Yen strengthens as the US Dollar retreats ahead of the Retail Sales data release.
- Japan's Q3 GDP growth slowed to 0.9% annualized, down from 2.2% in Q2.
- Japan's Finance Minister Kato affirmed that measures will be taken to address excessive fluctuations in foreign exchange rates.
The Japanese Yen (JPY) recovered against the US Dollar (USD), breaking its four-day losing streak on Friday. However, the JPY faced challenges following the release of Japan’s Q3 GDP data, which revealed a slowdown in economic growth. Despite this, the USD/JPY pair's upward momentum was supported by the strength of the US Dollar, with traders preparing for the upcoming release of US October Retail Sales data.
Japan’s Q3 GDP grew 0.2% QoQ, down from 0.5% in Q2, matching market expectations. The annualized GDP growth for Q3 stood at 0.9%, surpassing the consensus of 0.7%, but showing a sharp decline from the 2.2% growth in Q2.
Japan’s Finance Minister Katsunobu Kato stated that measures would be taken to address excessive fluctuations in foreign exchange rates, emphasizing the importance of stable FX movements. Meanwhile, Economy Minister Ryosei Akazawa remained cautiously optimistic, expecting a modest economic recovery, but warned of potential risks from global economic uncertainty and market volatility.
US Economic Developments
- The US Dollar Index (DXY), which tracks the USD’s performance against six major currencies, traded at 106.70 after pulling back from its yearly high of 107.06. The decline can be attributed to a slowdown in "Trump trades."
- Fed Chair Jerome Powell highlighted the strong performance of the US economy, providing the Federal Reserve with room to gradually lower interest rates.
- Richmond Fed President Thomas Barkin emphasized that while progress has been made, further actions are necessary to maintain the economic momentum.
- In terms of inflation, the US Producer Price Index (PPI) rose 2.4% YoY in October, exceeding market expectations of 2.3%, while Core PPI climbed 3.1% YoY, slightly surpassing the forecast of 3.0%. Additionally, the US Consumer Price Index (CPI) rose 2.6% YoY, in line with expectations.
- BoJ Deputy Governor Shinichi Uchida highlighted the risks posed by digitalization, noting that financial institutions must be prepared for sudden deposit outflows. He also warned about the growing interconnectedness between non-bank financial institutions and the banking sector, which could amplify any weaknesses in the system.
- In its October meeting, the Bank of Japan (BoJ) maintained its outlook, suggesting that it could raise its benchmark rate to 1% by the second half of fiscal 2025, signaling a policy tightening of 75 basis points from current levels. Japan’s Producer Price Index (PPI) also rose 3.4% YoY in October, surpassing expectations.
Technical Analysis: USD/JPY Outlook
The USD/JPY pair traded around 156.50 on Friday, maintaining a bullish bias. The pair is moving upwards within an ascending channel pattern, with the 14-day Relative Strength Index (RSI) just below 70, supporting the upward trend. A breakout above 70 could indicate an overbought condition, potentially triggering a correction.
The upper boundary of the ascending channel near 159.70 is the next major target. A break above this level could push the pair toward a four-month high of 161.69, reached on July 11.
On the downside, the nine-day Exponential Moving Average (EMA) near 154.65 offers key support, followed by the lower boundary of the ascending channel at 153.90.
The USD/JPY pair remains in a bullish trend, but caution is needed as it approaches overbought conditions.
USD/JPY: Daily Chart
