Japanese Yen, USD/JPY, US Dollar, GDP, Bank of Japan, Fed – Talking Points
- USD/JPY steadied again on Tuesday despite negative GDP numbers
- The Fed and Bank of Japan continue to loom over their respective bond markets
- Japan GDP per capita remains challenged. Will JN CPI move USD/JPY?
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The Japanese Yen initially turned a blind eye to disappointing GDP figures with USD/JPY ensconced slightly above 140.00. Half an hour later, it popped above 140.40.
Japanese seasonally adjusted 3Q quarter-on-quarter GDP came in -0.3% against forecasts of 0.3% and against the 0.9% previously.
Seasonally adjusted annualised quarter-on-quarter GDP to the end of September was -1.2% instead of 1.2% anticipated and 3.5% prior.
Going into today’s data, USD/JPY had been languishing in the aftermath of US CPI released last Thursday that had been perceived as somewhat benign by the market.
This led to speculation that the Federal Reserve may not need to be aggressive with the rate hike cycle as previously thought.
These notions have been challenged to some degree in the consequent trading sessions with Treasury yields holding ground. The 10-year note is at 3.86% after visiting 3.81% immediately after US CPI.
The US Dollar is also seeing small gains at the end of the New York session going into Tuesday’s trade.
The relationship between Treasury yields, Japan-US bond spreads and USD/JPY can be seen in the chart below.
With the Bank of Japan yield curve control program, the bond spread is mostly determined by Treasury yield moves. Today’s data might suggest that the central bank will maintain loose monetary policy.
10Y TREASURY NOTE, US-JAPAN 10Y BOND SPREAD AND USD/JPY
On Sunday, Federal Reserve Governor Chris Waller re-iterated that he thought the Fed isn’t done with its hawkishness.
In comments made on Sunday, he said, “we’ve got a long, long way to go to get inflation down. Rates are going keep going up and they are going to stay high for a while until we see this inflation get down closer to our target.”
That target is somewhere close to 2% rather than the latest read of 7.7%.
He also highlighted that last Thursday’s softish US CPI number was only one data point. Several of his fellow board members have made this observation previously.
Then on Monday, Federal Reserve Vice Chair Lael Brainard hinted that a slowdown in the Fed’s hiking program might need to slow at some time soon.
Japan’s GDP per capita was USD 42,940 through 2021 against USD 69,288 for the United States. Today’s data represents a bumpy road of growth for the island nation.
More Japanese data will be seen shortly with industrial production, machine orders and national CPI reports still ahead in the next few days.
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— Written by Daniel McCarthy, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter
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