The Japanese yen continues to have a quiet week as it hovers close to the symbolic 110 line. Currently, USD/JPY is trading at 109.99, unchanged on the day.
Capex rebounds in Q2
We have been treated to a data dump out of Japan this week, and Capital Spending has been a bright spot. The Q2 release shot up 5.3% YoY, with manufacturing capex up 4.0% and non-manufacturing capex showing a gain of 5.9%. This was a strong rebound from the Q1 reading of -7.8% (YoY).
The increase in capital spending was the first since the start of the Covid pandemic in 2020, and is a positive sign of a revival in corporate activity after a prolonged period of dormancy. The reading was all the more impressive, as the second-quarter was marked by an upswing in Covid which take a toll on economy, especially the services sector. The positive reading points to stronger activity in both the manufacturing and non-manufacturing sectors. As well, it should result in an upward revision of second-estimate GDP, which expanded at 1.3% in the initial estimate.
The financial markets will now shift their attention to US employment data, with all eyes on Nonfarm Payrolls on Friday. Earlier today, the ADP Employment report was much lower than expected – the read of 374 thousand was well off the consensus of 613 thousand. The weak reading will certainly raise some eyebrows about the strength of the labor market, but it should be remembered that the ADP release is not a reliable indicator of the NFP, so the market reaction has been muted. The estimate for NFP is around 750 thousand, and if the reading is much lower than expected, I expect the dollar to lose ground.
- USD/JPY tested resistance at 110.28 earlier in the day. Next, there is resistance at 110.70
- On the downside, there is support at 109.43. Below, we find support at 109.00
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