JAPANESE YEN, JAPAN GDP, TALKING POINTS:

  • The Japanese economy contracted in the first quarter according to official data
  • This was the first such slip for nine quarters
  • The Yen’s position looks shaky, monetary policy will remain loose for the foreseeable future

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The Japanese Yen weakened Wednesday on news that its home economy shrank for the first time in nine quarters in the initial three months of 2018.

Official Gross Domestic Product for the first quarter fell 0.6% compared to the same period last year, according to official data. This was much worse than the expected flat result and only one of a number of weaker details in the release.

It also marked the end of the longest run of economic growth since the twelve-quarter runs seen in 1989 and 1986. The rise for 2017’s last three months was also revised down sharply, to 0.6% from 1.6% previously.

Growth contracted by 0.2% in the first quarter compared to that.

This weakness will do nothing to assuage views that the global recovery in general is running out of steam. It will also put the chances of any monetary tightening from the Bank of Japan much further off the table, although with inflation still stubbornly weak they were already pretty remote. The so-called 'Abenomics' economic refor programme will probably come under fire, as its effects seem to be waning, impressive though they have been on some counts

USD/JPY gained after the data, unsurprisingly, but the Dollar was already firmly resurgent thanks to gains in US Treasury yields overnight.

US Dollar Vs Japanese Yen, 5-Minute Chart.

On its broader daily chart, USD/JPY is rising again after a modest hiatus towards the end of last week. The pair is flirting once again with the highs of February which come in just above the current market. If the bulls can consolidate there, the highs of 2018, around 114.65, will be back in view. Wednesday's GDP data would seem to make another significant upmove much more probably on a fundamental basis.

US Dollar Vs Japanese Yen, Daily Chart.

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--- Written by David Cottle, DailyFX Research

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