Japan: Solid GDP but JPY still weighed by trade – DBS

FXStreet Insights Team FXStreet

DBS economists Taimur Baig and Radhika Rao expect Japan’s 1Q Gross Domestic Product (GDP) to grow 1.8% QoQ saar, supported by firm exports and AI- and semiconductor-related investment, keeping their 0.5% full-year GDP forecast on track. However, a return to trade deficit on higher Oil prices remains a key drag on the Japanese Yen (JPY), with Bank of Japan (BoJ) seen delaying rate hikes until July.

Growth resilient while BOJ stays cautious

"Preliminary 1Q GDP, as well as April trade and inflation data, are due this week. GDP growth is expected to remain resilient at 1.8% QoQ saar, up from 1.3% in the previous quarter. Exports stayed firm and industrial production picked up in 1Q, supported by the AI supercycle and rising semiconductor exports. Investment also strengthened, driven by continued AI- and semiconductor-related capex."

"Consumption, however, appears to have softened. Retail sales (including spending by foreign visitors) rose in 1Q, but the BOJ’s consumption activity index, which better captures domestic household spending, pointed to a slowdown."

"Given the solid 1Q performance, our full-year GDP forecast of 0.5% remains on track despite headwinds from the Middle East conflict and higher energy prices in 2Q."

"Separately, April trade data are expected to show the trade balance returning to deficit territory as export growth decelerates while imports pick up. The deterioration in the trade balance, as a result of higher oil prices, remains a key drag on the JPY. Unless oil prices retreat meaningfully, the impact of the Japanese government’s FX intervention is likely to remain temporary."

"April inflation data are expected to show CPI holding steady at 1.5% YoY, helped by government energy subsidy measures. With inflation remaining relatively tame, the BOJ is unlikely to be in a hurry to raise rates at the June policy meeting. We continue to expect a 25bp rate hike in July."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD hits multi-week tops around 1.3560

GBP/USD gathers fresh steam and advances to new three-month peaks near the 1.3560 zone on Friday. Cable’s sharp move higher comes after three daily drops in a row and follows the increasing selling pressure hurting the Greenback.

EUR/USD pops to fresh two-month highs, targets 1.1600

EUR/USD advances markedly, revisiting the upper 1.1500s for the first time since mid-June. The pair’s sharp uptick comes on the back of a strong retracement in the US Dollar amid BoJ intervention chatter and despite steady uncertainty in the Middle East.

Gold picks up pace, approaches $4,400

Gold rebounds toward the $4,400 mark per troy ounce on Friday, reversing the previous day’s pullback. The precious metal’s recovery comes as fresh and intense weakness keep weighing on the US Dollar, while traders keep assessing easing expectations of an imminent Fed interest rate hike and the situation from the Middle East.

Pi Network Price Forecast: PI extends consolidation as bulls eye $0.10

Pi Network (PI) price holds steady on Friday, maintaining a consolidating tone for three consecutive days. Mild retail strength in the PI token remains stable, with Open Interest above $9 million, while social buzz eases. PI token’s technical outlook is mixed, as bearish momentum wanes to neutral, with bulls eyeing the $0.1000 psychological level.

Weekly focus: Some relief in US inflation concerns

Actual inflation data for July came out as expected with a 0.1% m/m increase in headline CPI and 0.2% excluding food and energy. Annual headline inflation remains too high at 3.4% and means that wage earners are experiencing stagnating spending power at best, and core inflation is a bit higher than the inflation target of two percent would suggest.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.