USD/JPY Strengthens Past 146.600 Per Dollar On Positive Japanese GDP Quarter Four Data And Softer U.S. Dollar
Key Takeaways:
- The Japanese Yen strengthened past 146.600 per dollar on Monday during the Asian session, rising to an almost three-week high of 146.473
- Better-than-expected Japanese Quarter GDP data shows the Japanese economy escaped a recession, lending heavy support to the Yen
- A mixed U.S. NFP data report reaffirms market bets on incoming rate cuts this year, which is a headwind to the buck
The Japanese Yen strengthened past 146.600 per dollar on Monday during the Asian session, rising to almost a three-week high of 146.473 as fresh, positive Japanese data showed the Japanese economy escaped a recession.
Japan's GDP grew by 0.1% quarter-on-quarter in Q4 of 2023, compared with flash data of a 0.1% fall and a 0.8% contraction in Q3. The economy narrowly escaped a recession as markets expected a 0.3% rise, helped by a strong upward revision of capital expenditure (2.0% vs. the preliminary print and Q3 figure of a 0.1% fall and market consensus of a 2.5% rise).
Meanwhile, private consumption, which accounts for about 60% of the economy, shrank for the third straight quarter (-0.3% vs the initial reading of a 0.2% drop and after a 0.3% fall in Q3) due to elevated cost pressure and persistent headwinds at home.
The softer private consumption numbers increase the likelihood of hefty pay hikes by Japanese companies ahead of the annual wage talks that conclude on March 13th. This move would fully heighten expectations that the Bank of Japan (BoJ) would shift from its ultra-loose monetary policy stance in its next monetary policy meeting in April.
It is worth recalling that during the January monetary policy press conference, Bank of Japan Governor Ueda said, "If we get further evidence that a positive wage-inflation cycle will heighten, we will examine the feasibility of continuing with the various steps we are taking under our massive stimulus programme,".
Thus, the bumpy pay hikes would provide sufficient evidence for the Bank of Japan to phase out its vast stimulus, ending its negative interest rate run. That said, the hawkish BoJ market expectations lend heavy support to the Yen and are seen as a key factor that helped exert downward pressure on the USD/JPY cross.
Shifting to the U.S. docket, the greenback continues to be lacklustre and weakens for the third consecutive week on Monday, weighed by growing expectations of Fed rate cuts this year. The bets were reaffirmed after a U.S. Bureau of Labor Statistics report released on Friday showed job creation topped analysts' expectations in February. However, average hourly earnings dropped slightly while the unemployment rate moved higher, and employment growth from the previous two months wasn't nearly as hot as initially reported.
The U.S. economy added 275K jobs in February 2024, beating forecasts of 200K and higher than a downwardly revised 229K in January. Additionally, average hourly earnings for all employees on U.S. private nonfarm payrolls increased by 4.3% year-on-year in February 2024, after a downwardly revised 4.4% rise in the prior month compared with market estimates of 4.4%.
Moreover, the unemployment rate in the United States rose by 0.2 percentage points to 3.9% in February 2024, touching the highest level since January 2022 and surpassing market expectations of 3.7%. Notably, the January reading was revised sharply lower from an initial 353K, the highest in a year. The December reading was also revised lower by 43K to 290K.
The U.S. jobs report came a day after Fed Chair Jerome Powell, in his second day testifying before Congress for his semi-annual Monetary Policy Report, reiterated his remarks from the previous day that the Fed is "not far" from reaching the confidence needed to cut interest rates this year.
That said, the generally positive tone around the U.S. equity markets further weighs on the buck and helps cap the downside for the USD/JPY pair.
As we advance, traders look forward to the U.S. docket, which will feature the Consumer Inflation Expectations data report released during the mid-North American session. The data might influence the USD price dynamics, which, along with the broader market risk sentiment, should allow traders to grab some short-term opportunities around USD/JPY.
