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Japanese Yen Holds On Despite Huge 4Q GDP Plunge

Japanese Yen Holds On Despite Huge 4Q GDP Plunge

2020-02-16 23:52:00
David Cottle, Analyst
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Japanese Yen, Japan Gross Domestic Product Data, Talking Points:

  • Japan GDP growth took a big hit as 2020 bowed out
  • The statistics agency points at typhoon impacts and the imposition of higher sales tax
  • However economists will worry that Japan was ill-prepared economically for coronavirus

The Japanese Yen moved very little on Monday despite news of a big fall in growth for its home country, well ahead of expectations. This relative torpor is probably explained by the fact that monetary policy is already ultra-loose in Japan and likely to stay that way irrespective of the data.

Official Gross Domestic Product for the final calendar quarter of 2019 fell by a huge 6.3%, annualized and seasonally adjusted, nearly double the 3.8% slide expected and massively below the 1.8% rise seen in the third quarter. This is the worst showing for this series since 2014.

The seasonally adjusted quarterly fall was 1.6%, worse than the 1% slide expected. Private consumption and business spending were both sharply lower.

The Japanese statistics agency cited both the impact of typhoons and the imposition of sales tax as reasons for this woeful performance but market watchers are likely to be very concerned at the underperformance which has come in the very months before coronavirus hit.

Still, the Bank of Japan is already committed to extraordinary stimulus until inflation hits 2% and stays there. These data only underline how difficult that task will be, but the Yen has long done without the sort of data impact other currencies see as the link between the numbers and the policy response has been effectively cut.

US Dollar vs Japanese Yen, 5-Minute Chart
USD/JPY MIXED
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Change in Longs Shorts OI
Daily -6% 16% 6%
Weekly 31% 8% 16%
What does it mean for price action?
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Both the Japanese Yen and the US Dollar have seen considerable bids as investors worried about the coronavirus’ economic impact seek haven assets.

As USD/JPY’s daily chart shows the US Dollar has been winning this ‘battle of the havens,’ with its 2020 uptrend still in place. However the greenback seems to be running out of steam short of January’s highs, but the long-term downtrend from 2015 remains very much in Dollar bulls sights.

US Dollar Vs Japanese Yen, DailY Chart

On pure interest-rate comparison alone there would seem very little reason to favor the Yen, especially with such weak Japanese data suggesting that it will carry miserly returns for the foreseeable future.

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Whether you’re new to trading or an old hand DailyFX has plenty of resources to help you. There’s our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There’s also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they’re all free.

--- Written by David Cottle, DailyFX Research

Follow David on Twitter@DavidCottleFX or use the Comments section below to get in touch!

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