Yen Pushes Higher, GDP Softer than Expected

• Japan’s Q3 GDP revised lower to -2.9%
• Japanese yen gains ground but can’t consolidate
• US nonfarm payrolls expected to rise to 180,000

The Japanese yen continues to show strong swings. In the European session, USD/JPY is trading at 143.94, down 0.16%. Earlier, the yen gained as much as 1.1% but couldn’t consolidate and surrendered almost all of these gains.

Japan’s Q3 GDP declines more than expected

Japan’s GDP contracted by 2.9% y/y in the third quarter, revised downwards from the initial estimate of 2.1% and below the revised market forecast of -2.0%. Consumer and business spending declined, and real wages and household spending also fell. Inflation remains high and continues to squeeze consumers.

The Bank of Japan will be paying particular attention to the fact that wages continue to fall sharply. inflation-adjusted real wages declined by 2.3% y/y in October, marking a 19^th straight monthly decline. The BoJ has insisted that it will not exit its ultra-loose policy until 2% inflation is sustainable, and that would require stronger wage growth. The soft GDP release and the disappointing wage data could complicate the BoJ’s plans to tighten policy.

The BoJ’s signals this week that it is looking to shift policy sent the yen surging on Thursday, with massive gains of 2.14%. Governor Ueda and BoJ Deputy Governor Ryozo Himino hinted at changes in policy, which was most unusual from the normally tight-lipped central bank. The yen reacted with huge gains and the December 18-19 meeting will be eagerly anticipated, as the BoJ could make some major announcements.

Nonfarm payrolls expected to rise

All eyes are on the US nonfarm payroll release later today. After falling sharply in October to 150,000 from a revised 297,000, nonfarm payrolls are expected to rebound to 180,000. If nonfarm payrolls are weaker than expected, speculation of a Fed rate cut will rise, and that could push the US dollar lower in the North American session.

USD/JPY Technical

• USD/JPY tested support at 143.72 earlier. Below, there is support at 143.27
• There is resistance at 144.39 and 144.84