The USDJPY currency pair was trading down over 100 pips at writing as the Japanese yen rallied against the US dollar after the Japanese GDP data. According to the report, Japan’s GDP remained flat in Q4 2022, missing analysts' expectations of a 0.2% expansion.
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The pair’s decline was not driven by the Japanese yen’s strength but mainly by the US dollar’s weakness. The dollar was rated as the weakest major currency today after Powell’s second-day testimony before Congress yielded no surprises.
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Investors took the chance to bid up other currencies apart from the dollar in preparation for tomorrow’s US nonfarm payroll data. Investors also bet that monetary policy divergence between the US and Japan could fuel a further rally in the USDJPY currency pair.
Last week, the incoming Bank of Japan (BoJ) Governor, Kazuo Ueda, confirmed that he would maintain the easy money policies championed by his predecessor Haruhiko Kuroda since the country’s economy had not fully recovered.
Therefore, the rally witnessed in the USDJPY currency pair since January is likely to continue unless the BoJ changes its monetary policy stance and starts hiking rates like its global peers. However, Ueda noted that Japan’s economy was still weak, as evidenced by the sluggish wage growth.
Still, the BoJ Governor may be forced to change tactics if Japan’s inflation level keeps climbing, as he might have no choice but to start hiking rates to cool down prices. The inflation levels are already above the BoJ’s 2% target and could rise further if the central bank does not take decisive action to slow it down.
Meanwhile, investors look forward to tomorrow’s US nonfarm payrolls data, which will fuel a rally in the US dollar if the print beats analysts' consensus estimates of 224,000 new jobs. Many expect the print to exceed expectations, but we must wait for tomorrow to get the figures.
Still, the yen is expected to continue falling against the US dollar if the BoJ maintains its dovish monetary policies while the Fed remains decidedly hawkish.
*This is not investment advice.
The USDJPY price chart.
The USDJPY currency pair was trading down 106.1 pips (0.77%) as the yen strengthened against the US dollar.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.