The Dollar/Yen is inching lower early Monday. The range is tight and traders are showing little reaction to the release of a disappointing domestic growth report. Instead, the price action is mirroring that of the September 10-Year U.S. Treasury note market. T-notes are inching higher, which means yields are a tad lower, making the U.S. Dollar a less-attractive investment.
At 02:19 GMT, the USD/JPY is trading 106.534, down 0.037 or -0.03%.
Japan’s Economy Suffers Record 27.8% Contraction in April-June
Japan’s economy shrank an annualized 27.8% in April-June to mark the sharpest contraction on record, government data showed on Monday, underscoring the pain the COVID-19 pandemic inflicted on the world’s third-largest economy.
The preliminary reading for second-quarter gross domestic product (GDP) compared with economists’ median estimate of a 27.2% decline, the data showed. It was the third straight quarter of contraction.
On a quarter-on-quarter basis, GDP shrank 7.8% in April-June, compared with the median forecast for a 7.6% decline, the data showed.
Pandemic Wipes Out ‘Abenomics’ Gains
With Japan hit by its biggest economic contraction on record in the second quarter as the coronavirus pandemic crushed consumption and exports, Japanese policymakers are now under increasing pressure to take bolder action to prevent a deeper recession.
The third straight quarter of declines knocked the size of real gross domestic product (GDP) to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe’s “Abenomics” stimulus policies deployed in late 2012, according to Reuters.
While the economy is emerging from the doldrums after lockdowns were lifted in late May, many analysts expect any rebound in the current quarter to be modest as a renewed rise in infections keep consumers’ purse-strings tight.
“The big decline can be explained by the decrease in consumption and exports,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“I expect growth to turn positive in the July-September quarter. But globally, the rebound is sluggish everywhere except for China.”
Daily Forecast
Traders seem to be shrugging off the bad GDP report, but are probably waiting for the next move by the Bank of Japan or Japanese government before reacting. The news is obviously bearish for the Japanese Yen, but with rates already ultra-low, traders aren’t going to stop using the currency for safe-haven protection or a carry-currency.