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01/07/24
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JPY Lower After Downgraded GDP
On Monday, the Japanese yen fell below the 161 level and the yen traded at about 161.39, down 0.35% for the day in the North American session.
The Japanese first-quarter GDP report was revised to -2.9%, y/y, far below the initial -1.8% reading. GDP was revised down to -4.0% on a quarterly basis, versus -3.7% in Q4.
The revision downward was caused by corrections in construction orders. The unusual revision will reduce hopes for the BoJ hiking rates at the July meeting and indicate a bumpy economic recovery.
Japan’s Tankan quarterly survey however showed that corporate inflation expectations inched higher and business confidence had improved. Those factors support a rate hike soon, which leaves BoJ policymakers with a bit of a problem regarding rate policy due to the data conflicting.
The significant decline of the Japanese yen may however tip the scale in favor of a rate hike, even as soon as in July. The yen is trading near 38-year lows versus the US dollar and has this year dropped a staggering 14%.
In late April and early May, the BoJ intervened in the currency market and bought $61B worth of yen. That was however only a stopgap measure, and the yen surrendered all the gains that came after the interventions.
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