Japan’s Finance Ministry is up for releasing the preliminary reading of the first quarter (Q1) 2020 Gross Domestic Product (GDP) figures at 23:50 GMT on Monday.
Market consensus suggests an upbeat -1.2% QoQ figure versus -1.8% prior. Further, the yearly format also indicates consolidation for the Japanese yen traders with a likely -4.6% figure compared to the earlier -7.1% GDP.
Ahead of the release, Westpac said, “The market expects Japan to slip into a technical recession with a GDP contraction of 1.1% in Q1. Looking ahead, a steeper fall is likely in Q2.”
How could it affect USD/JPY?
In its latest Outlook for Economic Activity and Prices, BoJ said the economy is “likely to remain in severe situation for the time being” due to the impact of the coronavirus (COVID-19) pandemic. This suggests a further weakening of economic activity. The central bank revised down the GDP forecast for fiscal 2020 from -3.0% YoY earlier to -5.0%. In addition to expecting additional hardships for the economy, mainly due to the virus, BOJ stands ready, as always, to ease the monetary policy further. However, Governor Haruhiko Kuroda stayed away from further negative rates in his latest appearance.
That said, while the further weakening of GDP could continue exerting downside pressure on the pair, upbeat readings are less likely to have a longer-lasting positive impact. Even so, the present risk aversion, mainly due to the US-China tension and virus outbreak fears, could help the Japanese yen to be at a lesser loss.
Technically, buyers are waiting for the sustained break above 50-day EMA level of 107.65 to challenge the monthly low of 107.77 and aim for the mid-April top near 108.10. On the downside, 106.75 and the monthly low of 106.00 can entertain sellers during the fresh declines.
Key Notes
USD/JPY: Mildly bid around 107.00, Powell’s interview, Japan GDP in focus
USD/JPY Forecast: Waiting for a catalyst
About the Japanese Q1 Preliminary GDP
The Gross Domestic Product released by the Cabinet Office shows the monetary value of all the goods, services and structures produced in Japan within a given period of time. GDP is a gross measure of market activity because it indicates the pace at which the Japanese economy is growing or decreasing. A high reading or a better than expected number is seen as positive for the JPY, while a low reading is negative.
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