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16/05/24
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JPY Flat as Japan’s Economy Contracts
On Thursday, the Japanese yen rose 0.85% early in the day but has trimmed most of its gains. USD/JPY traded at about 155.38, 0.31% higher in the European session.
The Japanese economy contracted in Q1. GDP dropped by 2% y/y, after Q4 2023’s revised 0% reading. This was lower than the market forecast of -1.5%. GDP dropped by 0.5% on a quarterly basis, down from the revised 0% reading and slightly higher than the market consensus of -0.4%.
The lower GDP release was due to weak private consumption, which dropped for the fourth straight quarter. Companies and consumers reduced spending due to sluggish wage growth and high inflation. Exports in the first quarter also decreased as global demand is still weak.
After a number of US inflation reports that indicated inflation was moving higher, CPI in April reversed direction and fell to 3.4% from 3.5%. The drop in inflation, especially in the core rate, increased expectations that the Fed would cut rates and pushed the yen up 0.98% in after the inflation report.
According to the CME FedWatch tool, markets are pricing in a rate cut in September at 74% and a 94% chance of rates being cut before the end of this year.
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