USDJPY Extends Losses As Japan Avoids Recession

Summary:
• Japan's GDP exceeded expectations in Q4 of 2023, and this has pushed USDJPY lower, as the yen, pushes higher on possible BoJ rate hikes.

USDJPY headed lower in late morning European trading session on Monday, as the yen strengthened against the dollar on the back of a positive GDP data. The pair traded at 146.662 at 11.35 am UTC, as traders continued to be bearish against the dollar, in the absence of scheduled high-impact release from the United States.

Japan’s economy performed better than expected in the fourth quarter of 2023, growing by 0.1%, against a forecast contraction of -0.1%. In addition, the economy grew year-on-year by 0.4%, exceeding the forecast decline of -0.4%.  As a result, the world’s fourth-largest economy avoided a widely-expected technical recession, improving the market outlook for the yen. The BoJ  is now in a stronger position to exit its negative interest rates.

Meanwhile, the dollar had mixed fundamentals on Friday. The February Nonfarm Payrolls data coming in at 275,000 to beat the projected 175,000 figure, but the January jobs figures were revised downwards by 124k to 229k. Also, the unemployment rate came in at 3.9%, higher than the projected 3.7%. Similarly, hourly earnings fell below the projected 0.2% to come in at 0.1%.

These factors have done little to support the dollar amidst a dovish Fed sentiment emanating from last week’s Congress testimony by Fed Chairman Jerome Powell. Attention now shifts to Tuesday’s release of US February inflation figures, which will provide fresh impetus. In the intervening time, the USDJPY downside is likely to continue, supported by falling US Treasury yields. Rates on the 10 and 5-year bonds fallen to 4.0% as of this writing, buttressing the bearish sentiment.

Technical analysis

The USDJPY currency pair pivots at 147. 25, with the RSI indicator sending a mixed –to-bearish signal. If the selloff continues at its current pace, the bears will be in control below the 147.25 pivot, and the 146.45 support could break. The continuation of bearishness at that point could see the pair target 146.00. However, a price swing above the pivot mark will put the buyers in control, with the resistance at 147.75 likely to break. Prolonged control by the buyers at that point will invalidate the downside narrative, and potentially drive the pair to meet the next resistance at 148.30.