Yen pulls back as on Q4 GDP declines

The Japanese Yen which gained steadily since January this year was seen easing back since Friday, led by more declines in today’s early Asian trading. The Yen considered a safe-haven asset decline despite downbeat data from China and Japan.

Data released earlier today from China showed the January trade surplus at CNY406.2 billion as exports declined -6.60% year on year while imports fell -14.40%. The US Dollar denominated surplus was $63.29 billion, with exports declining -11.2% while imports fell -18.80%. In Japan, Q4 GDP data showed a more than estimated decline in the economic activity largely due to private consumption. Preliminary data released today showed the Japanese economy contracting -0.40% in the fourth quarter of 2015, while contracted -1.40% on an annualized basis, more than the estimated -0.80% contraction. However, third quarter GDP numbers were revised higher from 1.0% previously to 1.30%.

Most of the declines in the GDP came from private consumption with weak headline growth numbers. The GDP data showed that the Japanese economy was not out of the woods just as yet but also shows that there is little evidence for a turnaround in the economic activity as corporate spending and private consumption remains low. Wage growth is also expected to dampen any growth in the GDP.

USDJPY was trading in the positive since Friday’s retail sales numbers from the US showed a surprise beat on estimates. The Dollar managed to close Friday’s session at 113.276Yen and continued to push higher in today’s early Asian trading. Over the weekend, BoJ officials were seen commenting on the recent market volatility.

BoJ official, Masako commented on the Central Bank’s negative interest rate decision. He said that “stable exchange rates were important but were unclear on how far in the negative, interest rates could go“.

Earlier today, Japanese PM Abe also commented that “Excessive FX volatility was undesirable and that he was ready to take the necessary steps required if need be” echoing similar sentiments from BoJ’s Nasako. The comments from the Japanese PM and BoJ official does not come as a surprise as the markets started to anticipate verbal or Fx intervention as the Yen posted sharp gains, making exports less competitive for an economy that relies heavily on the export sector.

Today’s Yen’s weakness, however, comes as a surprise, at least until now as the risk assets are starting to pull higher. Gold prices retreated off their $1250 highs while the EURUSD was also seen trending lower since Friday indicating that the strong risk aversion sentiment could likely ease. However, caution needs to be applied as China’s inflation and PPI data is due out later in the week including the FOMC’s January meeting minutes all of which could signal further volatility in the markets. For today, ECB’s Mario Draghi is due to speak in the EU Parliament in Brussels today.

US and Canadian markets are closed on account of their respective Bank holidays.