USD/JPY strengthens more than $1 as Japan's GDP contracts

This morning, the Cabinet Office of Japan revealed the nation’s latest GDP figures.

Japan on the verge of recession?

The figures were not comforting. According to the Cabinet Office, Japan’s GDP growth contracted 0.5% quarter-on-quarter, in line with market expectations.

Annualized, final numbers for Q1’s GDP growth was confirmed to be negative at -1.8%.

However, this was marginally better than estimates. Experts and analysts’ predictions had ranged from a 1.9% to 2% contraction in growth.

Should the country follow this quarter with a second one with a contraction in GDP growth, the country will officially be in a technical recession.

Spending not helping the economy

Furthermore, Japanese household spending habits are adding to the worry.

The same Cabinet Office figures this morning revealed that domestic demand figures had worsened further, from -0.1% in the first preliminary estimate to -0.2% in today’s second estimate.

Likewise, Consumption of Households figures went from - 0.7% in the first preliminary figures, to -0.8% today.

The JPY performance

The US dollar strengthened against the Japanese yen at the release of the news, with the USD/JPY rising to $157.15.

The US dollar has accelerated sharply against the yen recently. In just one week, the greenback has strengthened more than $1 against the yen, from $156.08 on June 3^rd to $157.15 today.  

In one month, the yen has lost ground of more than $1.30 to the dollar, with the USD/JPY going from $155.78 on May 10^th to over $157 today.

Read more: Japanese yen interventions could backfire

Further figures coming out of Japan

This week, Japan’s economy will see a wealth of statistics released, which may shed more light on its financial situation.

On June 12^th, the Bank of Japan will release its latest monthly report on the Corporate Goods Price Index, specifically the Producer Price Index.

Meanwhile, on Friday June 14^th, the Bank of Japan will give its latest interest rate decision.

It is widely expected that the BoJ will leave rates unchanged. However, today and Wednesday’s figures, particularly where they denote that spending has declined among both households and businesses, may give the bank food for thought.