Chart of the day - USDJPY (16.05.2024)

Japan's economy experienced a more significant contraction than anticipated in the first quarter of 2024, with an annualized decrease of 2.0% compared to the expected 1.5% drop, according to preliminary GDP data from the Cabinet Office. This marked downturn reflected the pressures from a persistently weak yen that continued to impact consumers negatively. Notably, private consumption, which makes up over half of the Japanese economy, fell by 0.7%, significantly more than the anticipated 0.2% decline. This decrease represents the fourth consecutive quarter of falling consumer spending, the longest streak since 2009. Capital expenditures also declined by 0.8%, reversing growth from the previous period and marking the first decrease in two quarters.

• Quarterly Contraction: the GDP shrank by 0.5% from the previous quarter, compared to an expected decline of 0.4%.
• Private Consumption: fell by 0.7%, a more significant drop than the anticipated 0.2% decrease, marking the fourth consecutive quarter of decline—the longest streak since 2009.
• Capital Expenditure: declined by 0.8%, the first decrease after two quarters of growth.
• Exports: Saw a reduction of 5.0% from the previous quarter, the largest drop since the second quarter of 2020.

The weak yen has simultaneously benefited export and tourism sectors due to a more competitive exchange rate, while escalating the costs of imported goods, thereby squeezing households and small businesses. This economic environment poses a challenge to the Bank of Japan's recent shift towards tightening monetary policy, including a rate increase in March—the first since 2007. The central bank may face delays in future rate hikes depending on economic recovery in the current quarter. At the time of publication, markets are pricing in the next full 10bp interest rate hike at the September meeting. 

USDJPY (D1 interval)

Despite the weak data coming out of Japan's economy, the yen is the strongest G10 currency today, with USDJPY losing 0.30% to 154.400. The JPY's appreciation can be attributed to the USD's sharp depreciation following US CPI data yesterday. Since the release of the report, we have seen capital outflows from the dollar, with the JPY benefiting directly from this move. Despite the positive global environment, the decline of USDJPY was halted just after the release of the Japanese GDP. Since then, the exchange rate remained stable and is moving sideways.

Source: xStation 5