Trade Desk Thoughts - Japanese Final GDP Price Index

Japanese Final GDP Price Index Actual -1.5%, Expected -1.6%, Previous -1.6%

Release Explanation: This release is a broad gauge of inflationary pressures seen in the Japanese economy. Also called the GDP deflator, if differs from the CPI in that it does not take into account the changes in the price of imports and also tends to underestimate price changes. This release is also rather untimely as it is released quarterly, about two months after the reporting period. The deflator does however provide insights into the future direction of monetary policy as the BOJ is likely to raise rates when faced with higher inflation.

Trade Desk Thoughts: The Japanese economy contracted more than the government initially stated last quarter as businesses cut their spending. The gross domestic product shrank an annualized 3 percent in the 3 months to June. Bank of Japan Governor Masaaki Shirakawa stated last week that the world’s second largest economy is likely to “remain sluggish for the time being”, which means little room for rate cuts or any form of a government stimulus. Stalled growth and the fastest inflation seen in nearly a decade have created many problems lately for the Bank of Japan, which will probably keep interest rates unchanged for the remainder of 2008.

Forex Technical Reaction: After finding support from the 50 and 100 day SMA the Japanese yen has moved very little in response to this release. The pair is currently trading above the neutral LFB pivot point at 107.04.

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