Japanese yen strengthens despite higher-than-expected Q4 GDP

Japanese yen daily update


Japanese yen daily update

The Japanese yen continues to strengthen today, despite Q4 GDP growth figures which have been revised up. While preliminary Q4 growth came in at 0.9%, the second take of Q4 GDP has been revised up to 1.6% year-over-year growth. As a safe haven currency, the yen tends to depreciate when growth is higher than expected. Looking at other data, the Eco Watchers survey (a measure of sentiment) continues to trend down. While Japan's economy has performed surprisingly well in the past 12 months, the future outlook is more uncertain. Sentiment surveys in other major economic regions (such as the Eurozone and China) have also fared poorly in the past few months. Beyond Japanese data, traders may also be buying the yen in order to hedge their euro exposure. As we wrote in today's  euro daily update, there is a risk that the ECB outlines a weak outlook for future growth given worsening data. EUR/JPY is currently weaker. Our short-term and medium-term outlook on the yen remains bullish.   

USD/JPY is currently trading above 105.90. EUR/JPY is currently down and trading above 131.40.

Looking at Japanese economic data this week, we'll see Q4 GDP figures and hear from the Bank of Japan. Markit services PMIs missed expectations (51.7 vs. 52 expected). The leading economic index (104.8 vs. 106.2 expected) was below consensus estimates. Cross-border stock (-¥463.4b) and bond (-¥1,188.5b) investments suggest continued inflows into Japan. Q4 GDP (1.6% vs. 0.9% expected) was revised up. The current account (¥607.4b vs. ¥310.0b) was better than expected. The Eco-Watchers survey (51.4 vs. 52.8 expected) suggested decelerating future growth. Tomorrow, we'll see inflation for January. Governor Kuroda will also deliver his monetary policy statement at the upcoming BoJ meeting. No changes to interest rates are expected. Last week, manufacturing PMIs remained healthy while industrial production contracted.