USD/JPY: Japanese GDP Surges Above Expectations
Growth Aces | Aug 14, 2017 07:08AM ET
EUR/USD rallied again on lower U.S. CPI reading
Macroeconomic overview: The Labor Department said U.S. CPI edged up 0.1% last month after being unchanged in June. That lifted the year-on-year increase in the CPI to 1.7% from 1.6% in June. The market had forecast the CPI rising 0.2% in July and climbing 1.8% year-on-year.
Stripping out the volatile food and energy components, consumer prices gained 0.1% for the fourth straight month. The so-called core CPI rose 1.7% in the 12 months through July and has now increased by that margin for three consecutive months.
The Fed has a 2% inflation target and tracks a measure that has been stuck at 1.5% since May. Inflation remains tame despite a tightening labor market, a conundrum for the central bank as it contemplates tightening monetary policy further.
The Fed is expected to outline a program to start offloading its USD 4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its September 19-20 policy meeting. It is expected to raise interest rates in December, though such a move would depend on future inflation data.
Technical analysis: Positive close on Friday keeps the bias on the bulls. Charts continue to tick north and a retest of Friday's 1.1848 peak remains possible. 7-day exponential moving average has flipped to support.
Short-term signal: We stay flat now. We are looking to buy on dips.
Long-term outlook: Bullish
USD/JPY: Japanese GDP surged much more than expected
Macroeconomic overview: Japan's economy expanded at the fastest pace in more than two years in the second quarter as consumer and company spending picked up, highlighting a long-awaited bounce in domestic demand.
The world's third-largest economy expanded by a much stronger-than-expected annualised rate of 4.0% in April-June, posting its longest uninterrupted run of growth in a decade, government data showed on Monday. The market had expected growth of 2.5%.
Activity is expected to continue to improve in coming quarters, offering the Bank of Japan hope that a tight labour market is finally starting to boost wages and consumer spending, which in turn should make it easier to generate sustained inflation.
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The rosy data was also a vindication for Japanese Prime Minister Shinzo Abe's government, which has faced criticism that its economic agenda has not done enough to revive the country's fortunes.
Compared to the previous quarter, the economy expanded 1.0%, versus the median estimate for 0.6% growth.
Private consumption, which accounts for about two-thirds of GDP, rose 0.9% from the previous quarter, more than the median estimate of 0.5% growth. That marked the fastest expansion in more than three years as shoppers splashed out on durable goods such as cars and home appliances. Consumers also spent more money on dining out, the data showed. These are all encouraging signs that consumer spending is no longer the weak spot in Japan's economic outlook.
Employees' wages rose 0.7% in April-June from the previous quarter, which was the biggest increase since July-September last year and another sign of the economy's vigour.
Japan's growth had been largely reliant on robust exports earlier in the year, though there were signs private consumption was picking up. The fact that the economy was able to grow this much without gains in exports shows our fundamentals are solid.
Capital expenditure jumped by 2.4% in April-June from the previous quarter, doubling the median estimate for a 1.2% increase. That was the fastest growth in business investment since January-March 2014 as companies spent more on software and construction equipment.
Japanese Economy Minister Toshimitsu Motegi was cautious on the outlook for domestic demand and pledged to implement extra measures to strengthen the economy. "If you ask me whether private consumption has fully recovered, I would say it still lacks strength in some areas, which will need to be followed with policy," Motegi told reporters.
External demand subtracted 0.3 percentage point from GDP growth in April-June in part due to an increase in imports. This is notable because Japan usually relies on exports to drive growth.
While growth was faster than expected, it is not expected to nudge the Bank of Japan into dismantling its massive stimulus programme any time soon, as inflation remains stubbornly weak. Since launching quantitative easing in April 2013, the BOJ has pushed back the timing for reaching its 2% inflation target six times due in part to weak consumer spending. The GDP data for April-June show private consumption is finally starting to move in the direction that the BOJ and other government ministers have long predicted.
Investors shrugged off better-than-expected Japan’s macroeconomic data and the JPY dropped against the USD on Monday.
Heightened geopolitical risks still weigh on currency market. Chinese President Xi Jinping said on Saturday that there needs to be a peaceful resolution to the North Korean nuclear issue, and in a telephone call with U.S. President Donald Trump he urged all sides to avoid words or action that raise tensions.
Technical analysis: Friday’s close off its low formed a doji on the daily charts. A close above 109.17 today could suggest a potential base so caution is advised.
Short-term signal: Flat
Long-term outlook: Bullish
Source: GrowthAces.com - your daily forex signals newsletter
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