USD/JPY: Here’s why the yen slipped after strong Japan GDP data

The USD/JPY pair rose for the third straight day today even after the relatively strong Japanese data and the weak US dollar. The pair is trading at 105.30, which is the highest it has been since Monday last week.

Strong Japan economic data

The Japanese economy had a strong fourth quarter, helped by the generous government stimulus package. According to the Ministry of Finance, the country’s economy expanded by 3.0% in the fourth quarter after rising by 5.3% in Q3. This expansion was better than the median estimate of 2.3%.

The economy expanded by 12.7% on an annualised basis, better than the median estimate of 9.5%. This expansion was mostly because of a 4.5% increase in capital expenditure and the 2.2% increase in private consumption. External demand also expanded by 1.0% in Q4. Private consumption is notable since it accounts for about 50% of the total GDP.

Analysts expect that the Japanese economy will have a more robust recovery than most countries. For one, its death toll has been relatively low while the unemployment rate has remained close to record lows. 

Further, analysts believe that demand for most of its products like heavy machinery and cars will keep rising because of the ongoing economic stimulus around the world.

Looking forward, the USD/JPY price will react mostly to economic data and events from the United States. This week, Congress will continue deliberating the proposed $1.9 trillion stimulus package. The deliberations will come at a time when the Congressional Budget Office (CBO) has warned about the deficit.

The key economic numbers from the United States this week will be retail sales, producer price index (PPI), housing starts, and building permits, among others.

USD/JPY technical outlook

The four-hour chart shows that the USD/JPY price formed a bullish flag pattern a few weeks ago. It then broke-out higher on January 27 and rallied by almost 2% to 105.77. Last week, the price dropped to 105.38, which was also the upper side of the flag pattern. It then started moving upwards and is a few points below the year-to-date high of 105.75. Therefore, the pair will likely continue rising as bulls target the next resistance at 105.75.