• Japanese GDP contracts by 2.1%
• US retail sales decline by 0.1%  but beats forecast

The Japanese yen has lost ground on Wednesday. In the North American session, USD/JPY is trading at 151.09, up 0.48%.

In the US, retail sales declined in October but still managed to beat expectations. Retail sales dropped 0.1% m/m, down from a revised 0.9% in September and snapping a streak of six straight increases. Still, this beat the market consensus of -0.3%.

Japan’s GDP falls 2.1%

Japan’s economy contracted 2.1% y/y in the third quarter, much worse than the market consensus of -0.6%. This follows a strong gain of 4.8% in the second quarter. On a quarterly basis, GDP declined 0.5%, missing the market consensus of -0.1% and the revised second-quarter reading of 1.1%.

The soft GDP release, the weakest in two years, reflected weaker consumer demand and a drop in exports due to decreased global demand. The Japanese economy has been unstable since the Covid pandemic in 2020, alternating between periods of contraction and expansion.

The Bank of Japan has been under pressure to tighten its ultra-loose policy in light of persistently high inflation, but policy makers will have little appetite to tighten while the economy remains fragile. The BOJ is also contending with a rapidly depreciating yen. The currency got a boost on Tuesday as a soft US CPI report sent the US dollar sharply lower, but the yen is back above 151 today and the threat of intervention is hanging in the air.

US inflation weaker than expected

US inflation was softer than expected in October, and the US dollar beat a hasty retreat on Tuesday, with sharp losses against the major currencies, including the yen.

Headline inflation fell from 3.7% to 3.2% and the core rate ticked lower to 4.1%, down from 4.0%. The markets have repriced the rate odds at the December meeting, with the probability of a pause at 99.8%, according to the CME’s FedWatch Tool. It is looking more likely that the Fed’s tightening cycle is over and the markets are now looking at a rate cut as early as May.

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USD/JPY Technical

• USD/JPY has support at 150.82 and 150.05
• There is resistance at 151.39 and 152.31

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