USD/JPY: Buy At 122.10

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USD/JPY: buy at 122.10, target 124.50, stop-loss 121.20, risk factor **

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USD/JPY: Japan Slipped Back Into Recession

(buy at 122.10)

• Japan’s economy shrank an annual 0.8% in July-September after a 0.7% contraction in the prior quarter, putting it firmly into recession - two consecutive quarters of declines.

• Economics Minister Akira Amari, at a news conference noted a shortage of labour available for public works projects to stimulate the economy, highlighting a major constraint policymakers face - not enough suitable workers to build growth. Amari urged Japanese firms to use their record cash holdings to raise wages and boost capital spending to generate a virtuous circle of growth led by the private sector, instead of simply demanding yet more stimulus when such growth remained elusive.

• Even though today's numbers were gloomy, the government maintained its cautiously upbeat outlook, saying that despite some weaknesses, the economy continued to recover moderately on improvements in job and income conditions. Amari said a big reduction in inventories was the major culprit in the third-quarter contraction. Excluding this effect, he said, final demand contributed an annualised 1.4 percentage point to growth.

• Capital expenditure fell 1.3% to mark a second declining quarter, and revealing the sluggish state of manufacturing investment. Private consumption rose 0.5% from the previous quarter, in line with the median market forecast. While domestic demand shaved 0.3 percentage point off GDP growth, foreign demand for Japan's exports added 0.1 point, the data showed.

• The weak data would have come as little surprise to Bank of Japan officials, who had also largely factored in the recession, and now expect growth to recover in coming quarters as consumption and factory output show signs of a pick-up, however modest. 

• The data will be closely scrutinised by the Bank of Japan, but board members are widely expected to keep monetary policy steady at the central bank's rate review this week.

• The deadly attacks in Paris led to a bout of global risk aversion. The JPY, a traditional safe-haven currency, strengthened at the opening of the Asian session. However, weaker-than-expected GDP reading weakened the JPY again and the USD/JPY is near 123.00 now. 

• Our short USD/JPY position opened at 123.30 was closed with a small profit at 122.85. We are looking to buy the USD/JPY now as we expect the USD to strengthen in the short term. Hawkish FOMC minutes on Wednesday could trigger a new wave of the USD buying. We have placed our bid at 122.10, just above important support area.

Significant technical analysis' levels:

Resistance: 123.07 (high Nov 12), 123.22 (high Nov 11), 123.44 (high Nov 10)

Support: 122.23 (session low Nov 16), 122.00 (psychological level), 121.93 (50% fibo 120.26-123.60)