The USD/JPY price retreated sharply in early trading after the relatively strong Japanese GDP data. The pair declined to a low of 109.337, which was substantially lower than last week’s high of 110.80.
Japan GDP data
The Japanese economy did relatively well in the second quarter as the government stepped up arrangements for the Tokyo Olympics.
According to the statistics agency, the economy expanded by 0.3% in the second quarter. This was a sharp reversal after the country’s economy contracted by 1.0% in the first quarter. It was also a better performance than the median estimate of 0.2%.
The Japan GDP expanded by 1.3% on a year-on-year basis. This was a strong performance than the median estimate of 0.7% and the first quarter’s decline of 3.9%.
The statistics agency attributed the strong recovery to a rebound of private consumption and capital expenditure. Private consumption increased by 0.8% after falling by 1.5% in the previous quarter. This was notable since this is the biggest constituent of the country’s GDP.
Meanwhile, capital expenditure increased by 1.7% in the second quarter after falling by 1.2% in the first quarter. This expansion was in line with the median estimates.
The only laggard for the Japanese economy was external demand as key manufacturers continued to go through the chip shortage. External demand declined by 0.3% in the quarter.
The next key catalysts for the USD/JPY pair will be from the United States. On Tuesday, the country’s statistics agency will publish the latest retail sales numbers. Analysts expect that sales retreated as the country handled the Covid pandemic.
The US retail sales will be followed by a statement by the Federal Reserve chairman and the FOMC minutes.
USD/JPY technical analysis
Turning to the four-hour chart, we see that the USD/JPY rose to a high of 110.80 last week. It then retreated substantially to the current low of 109.35. Along the way, the pair moved below the key resistance at 110.60. The USD/JPY price also moved below the 25-day and 50-day moving averages, which is a bearish sign. The MACD has also moved below the neutral line. Therefore, the pair will likely maintain the bearish trend as bears target the next key support at 109.00. This view will likely change if Jay Powell comes swinging with a hawkish statement.