USD/JPY Fundamental Daily Forecast – Dollar/Yen Retreats as Treasury Yields Dip on Jump in Retail SalesJapan’s Economy expanded more than expected in the fourth quarter thanks to a rebound in overseas demand that boosted exports and capital spending.
The Dollar/Yen is trading lower late in the session on Wednesday after giving back earlier gains. The Forex pair was boosted early in the session by another rise in U.S. Treasury yields, but prices retreated when yields dipped slightly from levels not seen in a year.
At 19:09 GMT, the USD/JPY is trading 105.894, down 0.099 or -0.09%. This is down from a high of 106.224.
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In economic news, data for retail sales in the U.S. in January showed a 5.3% jump. Economists expected retail sales rose by 1.2% after a surprise 0.7% decline in December, according to Dow Jones.
Producer price data for January also came in higher than expected, adding to inflation fears. The Bureau of Labor Statistics saying the 1.3% jump was the highest on record for the index.
Late in the session, the Federal Open Market Committee (FOMC) meeting minutes reaffirmed that the central bank will be keeping policy loose well into the future.
Japan Extends Economic Recovery as Exports, Capex Shake Off COVID Hit
Japan’s Economy expanded more than expected in the fourth quarter, extending the recovery from its worst postwar recession thanks to a rebound in overseas demand that boosted exports and capital spending.
But the recovery slowed from the third quarter’s brisk pace and new state of emergency curbs cloud the outlook, underscoring the challenge policymakers face in preventing the spread of COVID-19 without choking off a fragile recovery, especially in the battered consumer sector.
The world’s third-largest economy grew an annualized 12.7% in October-December, government data showed on Monday, exceeding a median market forecast of 9.5%.
It was slower than the revised 22.7% surge the previous quarter, when the economy got a lift from pent-up demand after a previous state of emergency was lifted in May.
For the full coronavirus-stricken year, Japan’s economy contracted 4.8%, the first annual fall since 2009.
But Japan’s October-December performance was stronger than U.S. growth of 4% and a 2.8% slump in the Euro Zone. With two straight quarters of solid growth, Japan’s economy likely recouped 90% of pandemic-induced losses, analysts say.
Conditions are such that Japan will not be able to avoid negative growth in the first quarter,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research.
“There is a high possibility that there will be a repeating cycle of coronavirus infections spreading and being contained this year, which means that consumption is not likely to recover at the expected pace.”
“Japan’s recovery proceeded at a much faster pace than initially expected,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“There’s still some distance toward a full normalization, but economic activity is recovering toward pre-pandemic levels.”