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Japanese GDP misses forecasts, JPY surges again


  • Japanese GDP missed the consensus in the fourth quarter of 2017, details mixed
  • JPY gains momentum the second day in a row, the country’s Ministry of Finance weighs in
  • API reports a higher than expected build in stocks, oil prices trade flat in the morning

The Japanese currency has stolen the show of late as it’s been one of the strongest currency among majors. A larger jolt came in yesterday being chiefly fueled by the US dollar weakness. However, the Swiss franc saw increased demand as well, the euro was higher yesterday too. The yen gained despite a weaker GDP print - the preliminary reading showed 0.1% qoq gain against the median estimate of 0.2% qoq. The details did not impress as well as household consumption delivered only a marginal contribution and investment contribution was literally non-present for a second quarter in a row. 

link do file download linkJapanese GDP missed the forecast in the Q4 but managed to show another rise in a row. Source: Macrobond, XTB Research

As far as annualized GDP is concerned it came out at 0.5% yoy vastly missing forecasts at 1% yoy. Although the prior reading was revised quite noticeably down from 2.5% yoy to 2.2% yoy it was the eighth consecutive quarter of economic growth as Japan benefited from global economic recovery. On top of that, the details appear to be rather weak as GDP deflator was flat (in line with expectations) suggesting no inflationary pressures ahead. Consumer spending grew 0.5% qoq which was higher than expected whereas business expenditure disappointed coming in at 0.7% qoq, the street’s call had indicated  1.1% qoq (the prior reading was lowered from 1.1% to 1% in a quarter-on-quarter basis). To sump up, Japan’s growth registered in the last quarter of 2017 turned out to be the slowest one in two years. At the same time appreciating yen makes a task for monetary policy (that is already hardly efficient) even more daunting. 

link do file download linkThe USDJPY has already crossed a 107 handle but an important support could play a major role. Source: xStation5

Technically, the USDJPY has broken out of 107 which in theory could allow sellers to accelerate their rally (notice that Japanese FM said that he was closely monitoring whether or not the recent yen rises are speculative) . On the other hand, a support placed in the vicinity of 107.4 could be a significant hurdle for bears leading to a potential pullback in the nearest future. Finally, do notice how much the pair and the US 10Y yield have diverged lately and therefore much deeper falls seem to be contained. Having said that, one needs to be aware that the Japanese currency is placed among the most undervalued currencies in the G10 basket, hence the upside potential might be substantial in the long-term, however, without the stronger economy and less expansionary policy it seems to be hard to do. Looking beyond the yen one may spot that the US dollar is again on the back foot being the worst currency. The best performer at the time of writing is the NZ dollar following a subtly better reading of 2Y inflation expectations (2.11% vs. 2.02% previously).

link do file download linkOil prices (OIL.WTI on xStation5) broke a rising trend line which could give rise to a pullback toward $55. Although they could be under selling pressure in the near-term (adverse seasonality, CFTC positioning) a resumption of an uptrend appears to be on the cards in the longer-term prospect. Source: xStation5

At the end let’s write something about oil prices which found themselves under selling pressure yesterday when the API report was released. It showed a 3.95 million barrels build beating the survey median expectation at 2.8 million barrels. Simultaneously, gasoline inventories picked up 4.63 million barrels while stockpiles in Cushing decreased 2.3 million barrels. It set the bar ahead of today’s DoE release quite high as the consensus points at a 2.6 million barrels increase thus oil prices could be under pressure during the day.


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