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  • Japan’s GDP increased from -0.5% to 2.2%, lower than the expected 2.5%.
  • COVID-19’s resurgence has darkened Japan’s economic outlook.
  • In the charts, the price might be retested at 131.894.

Today’s USD/JPY forecast is slightly bullish as investors respond to Japan’s GDP growth. According to data released on Monday, Japan’s economy recovered from a COVID-caused contraction in the second quarter at a slower-than-anticipated rate, raising questions about whether consumer spending will increase enough to support the much-delayed recovery.

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The future has been darkened by a recurrence in infections, slowing global growth, supply restrictions, and rising raw material prices that are increasing households’ living expenditures, even if rising spending supported April-June growth.

“Consumption and capital expenditure will continue to drive growth in July-September. But momentum may not be that strong as rising inflation is cooling household spending,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.

“While domestic demand may continue to expand, falling exports could put a brake on Japan’s recovery,” he said.

According to government data, the third-largest economy in the world grew by an annualized 2.2% in April–June, marking the third consecutive quarter of growth but falling short of consensus for a 2.5% gain.

Due partly to activity restraints that lasted until March, Japan has lagged behind other major economies in coming back from the damage of the pandemic.

To ensure that the economy achieves a durable rebound powered by solid consumption and wage growth, the BOJ has emphasized its determination to continue ultra-loose monetary policy even after inflation exceeded its 2% target for three consecutive months in June.

USD/JPY key events today

USD/JPY investors expect industrial production data from Japan later in the day. Industrial Production quantifies the change in the overall value of output produced by businesses in manufacturing, mining, and utilities after accounting for inflation. The value is expected to drop from 8.9% to -7.5%.

USD/JPY technical forecast: Bears eying the 131.894 support level

USD/JPY forecast

Looking at the 4-hour chart, we see the price reacting to the 30-SMA as resistance. Bears are starting to come back after bulls took the price higher to retest the SMA. Bearish momentum is also supported by the RSI, which trades below 50.

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At this point, the price will likely fall further to retest support at 131.894 before possibly breaking lower and pausing at 130.638.

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