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Growth to return to Japan in Q3 - BTMU

FXStreet (Barcelona) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ, assessed the recent GDP release in Japan.

Key Quotes

"impact on yen limited after sharp GDP contraction confirmed The yen has remained relatively stable in the Asian trading session with USD/JPY continuing to trade close to its’ 200-day moving average at 102.36. It was confirmed overnight that Japan’s economy contracted sharply in Q2 by an annualized rate of 6.8% following a modest downwardly revised expansion of 6.1% in Q1."

"The implementation of the sales tax hike in April has resulted in a volatile profile for economic growth in the first half of this year. The economy contracted modestly by an annualized rate of -0.6% during the first half of the year as whole. The annual rate of growth over the last year has also slowed to around 0.0% at the end of Q2 2014 compared to 1.3% at the end of Q2 2013 highlighting that the pace of economic recovery in Japan has eased after the initial positive boost from Abenomics."

"The breakdown of real GDP growth in Q2 revealed that the sales tax hike weighed heavily on private consumption which contracted sharply by -5.0% which represented more than just payback for growth of 2.0% in Q1 when demand was brought forward".

"The negative impact on capital investment was more limited contracting by -2.5% in Q2 although that followed a much larger expansion of 7.7% in Q1.The weakness in domestic demand was partially offset by a sizeable positive contribution to real GDP growth from net trade which added 1.1 percentage point as imports contracted more sharply than exports by -5.6%".

"Also of note was the GDP deflator which revealed firmer than expected inflation pressures jumping to an annual rate of 2.0% in Q2 from -0.1% in Q1."

"The Japanese economy is expected to return to growth in the second half of the year although the underlying pace of growth may remain more modest as the initial boost from Abenomics has eased".

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