The Japanese yen stabilized at the start of the new trading week. Currently the USD / JPY is trading at 104.66, up 0.10% on the day.
The yen has shown significant volatility lately. The currency fell 1.17% last week, wiping out almost all of the gains made the week before. It should be borne in mind that the gains and losses we see in the yen are more a case of movement of the US dollar than of specific volatility in the yen. Around the US election, investors sold off US dollars as the buy-all market frenzy lifted G-10 currencies, including the safe-haven Japanese yen. However, the US dollar was in recovery mode last week and recovered from those losses against the yen.
Japan’s GDP beats forecast
The major economies showed a strong recovery in the third quarter, after supporting a sharp decline in GDP in the second quarter. Japan’s second-quarter decline of -7.8% was more moderate than that of many other large economies, which posted double-digit contraction. The third quarter reading came in at 5.0%, which was lower than the second quarter decline, but still beat the forecast of 4.4%. There was more good news, as industrial production accelerated to 3.9% in September, up sharply from 1.0% previously.
Japan releases the National Core CPI on Thursday, an important inflation indicator. The index has not posted a gain since February, reflecting weak economic conditions due to the Covid-19 pandemic. The Japanese yen may have jumped on the bandwagon around the US election and posted strong gains, but the recovery has been short-lived as the Japanese economy continues to limp. The yen’s main selling point for investors is its status as a safe haven, but investors have shown a surprising tolerance for risk despite Covid, so what could be a bumpy road for the Japanese currency.
USD / JPY technical analysis
- 104.78 is a low resistance line. This is followed by resistance lines at 105.00 and 105.38
- 104.40 is the first line of support. Below there is support at 104.18
- USD / JPY is testing the 20 day MA line. A move below this line would be a sign of a pullback for the pair
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