Yen rises despite GDP contraction

The Japanese yen has improved on Thursday, despite a disappointing GDP report. In the North American session, USD/JPY is trading at 150.12, down 0.31%. USD/JPY fell as much as 0.70% today but has recovered much of those losses.

Japan tips into a technical recession

Japan’s fourth-quarter GDP was a disappointment, declining 0.1% q/q. This missed the market estimate of a 0.3% gains and followed a revised 0.8% decline in Q3. On an annualized basis, GDP fell 0.4%, after sliding 3.3% in the third quarter. The economy has fallen into a technical recession, which is defined as two consecutive quarters of negative growth. This marked the first time in five years that the economy has tipped into a recession.

Japan’s economy has been hit by the double-whammy of weak domestic demand and a sluggish global economy. Japanese consumers have cut down on spending due to relatively high inflation. Japan’s exports have been hurt by lower demand and the slowdown in China is of particular concern, as China is Japan’s largest export market.

There was more bad news after reports that Japan’s economy has been overtaken by Germany as the world’s third-largest economy. This displacement is not only a question of loss of prestige but points to structural problems in the Japanese economy, such as an ageing workforce which has lowered productivity.

The markets continue to keep a close eye on the Bank of Japan, which has hinted that it will end its negative interest rates later this year, perhaps as early as April. The weak GDP report could delay but won’t derail the BoJ’s plan to tighten policy.

USD/JPY Technical

• USD/JPY tested support lines at 150.08 and 149.80 earlier
• There is resistance at 150.61 and 150.86