Japanese third quarter GDP figures are due on Tuesday, November 14 at 2350 GMT. Quarter-on-quarter, the economy is expected to have grown by 0.3%, while on an annualized basis, economic activity is projected to have expanded by 1.3%.

Should the figures come out as anticipated, then they would reflect a slowdown relative to the second quarter’s 0.6% q/q and 2.5% annualized expansion. However, they would also mark the seventh consecutive quarter of positive economic growth, the longest such stretch since the period between Q2 1999 and Q1 2001 during which the Japanese economy grew for eight straight quarters.

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An upside surprise in the figures is expected to strengthen the Japanese currency. In that case, a declining dollar/yen pair could find support around the 113 mark, this being an area of congestion recently as well as 113 being a potential psychological level.

If on the other hand the numbers come out worse-than-expected, then market participants would likely push dollar/yen higher. The range around 114.50 could act as a barrier to a rising dollar/yen pair. The area around 114.50 encapsulates a number of peaks from the recent past, with the latest one being the eight-month high of 114.72 recorded on November 6. Before reaching this area though, the pair would need to clear the 114 mark, this being another potential psychological level. Should the figures differ from expectations, then the sharper the divergence the stronger the market reaction is expected to be.

Despite the world’s third largest economy being on track to expand for yet another quarter, highly accommodative fiscal and monetary policies are expected to remain in place with inflation being well below the Bank of Japan’s target of 2% on an annual basis. With the US’s Federal Reserve remaining on what looks a firm path of policy tightening, in stark contrast to the BoJ, then barring other external factors, dollar/yen is expected to move higher in the medium- to longer-term.

In the broader picture, a Chinese slowdown and a conflict with North Korea would rank high in terms of risks the Japanese economy could potentially face (with the latter one looking not that likely at the moment). On the upside, external demand due to an ever-strengthening global economic recovery would likely considerably benefit Japanese economic activity moving forward.


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