Japan's Perliminary 2Q GDP Figures Miss Expectations, USD/JPY Lower
THE TAKEAWAY:Japan second quarter GDP figures disappoint expectations > Investors likely expect the BoJ to hold current pace of stimulus amid slower growth, looking towards US data > USD/JPY Lower
The Japanese Yen strengthened against the US dollar as data showed Japan’s economy grew less than expected in the second quarter. The annualized quarter-over-quarter GDP growth came across at 2.6 percent on expectations for 3.6 percent. Consumer spending led the growth with a 0.8 percent year-over-year increase while business spending decreased 0.1 percent. This slowdown in growth may compel some investors to expect the Bank of Japan to do more to encourage economic growth. However, the lower USD/JPY after the release could indicate the market’s acceptance of the BoJ’s stance on monetary policy. The pair likely fell in a risk-averse move that saw captial move out equities and into the safe-haven currency.
On the fiscal side of Japan’s recovery efforts, the slower-than-expected growth could lead investors to expect a delayed sales tax increase. Japan’s Economy Minister Akira Amari, among other officials, has indicated the possibility of its introduction later this fall after a panel of experts review its effects. A tax increase could lead investors to expect the BoJ to also increase its efforts to offset a possible hamper on growth, moving the pair higher. Alternatively, a delay could allow traders to expect the current monetary policy to continue run its course. Investors will likely be monitoring upcoming Japanese data as well as the Bank of Japan’s July meeting minutes to weigh their expectations.
However, near-term price movement for the pair will likely come from expectations towards Federal Reserve policy. In addition to speeches from Fed officials, US data this week tied to retail sales, inflation, and consumer confidence will likely influence investor expectations on when the central bank will reduce its easing efforts.
USD/JPY (5-Minute Chart)
Source: FXCM Marketscope
Jimmy Yang, DailyFX Research Team