USD/JPY wavers after robust Japan Q3 GDP numbers

The USD/JPY pair is in a tight range after the second estimate of Japan’s GDP data and the new multibillion-dollar stimulus by the government. It is trading at 104.05, which is lower than yesterday’s high of 104.30.

Japan economy bounced back in Q3

Japan’s economy was going through a recession even before the Covid-19 pandemic. It contracted by 7.4% in the fourth quarter of 2019 followed by a 3.4% decline in the first quarter. The economy then crashed by 28% in Q2 because of the response to the pandemic.

In a report earlier today, Japan’s statistics office said that the economy bounced back by 5.3% in the third quarter. That was a better increase than the 5% that analysts were expecting.

The country’s economy rose by an annualised increase of 22.9%, which was better than the first estimate of 21.5%.

This performance was mostly because of the robust private consumption, which increased by 5.1% in the third quarter. It had previously crashed by 7.9% in Q2. External demand or exports also increased by 2.7% in Q3 after falling by 3.0% in the previous quarter.

However, capital expenditure, which is an important measure of economic performance, declined by 2.4% after falling by 4.7%. This performance was because many firms, including giants like Toyota and Honda started to prioritise capital preservation.

The USD/JPY is also reacting to the latest household spending data from Japan. According to the statistics office, the average household spending increased by 2.1% in October. On an annualised basis, the spending rose by 1.9%. Investors in forex watch these numbers closely because of their overall implications to interest rates.

Meanwhile, the Japan government unveiled another $708 billion stimulus package to help speed the country’s recovery. Once approved by the cabinet today, it will bring the total Japanese stimulus to more than $3.3 trillion.

USD/JPY technical outlook

The daily chart shows that the USD/JPY has been in an overall downward trend since March this year. In the past few months, it has formed a descending channel that is shown in black. It has also remained below the 25-day and 15-day exponential moving averages while the Average Directional Movement Index (ADX) has fallen to the lowest level since July.

Therefore, in the near term, the pair will possibly remain in the current range. As a result, the key support and resistance levels to watch will be 103.23 and 105.00, respectively.