USD/JPY's decline extends to two-week lows at 113.25

The dollar maintains its weak tone against the Japanese yen on Thursday, extending its reversal from multi-year highs at 114.75 reached last week. The pair has to fresh two-week lows below the mid-range of 113.00 following weaker than expected US macroeconomic figures.

US dollar dives after weak GDP data

The greenback has dropped across the board following a softer than expected US Gros Domestic Product report. According to advanced figures released by the Commerce Department, US economic growth slowed down to a 2% annual rate in the third quarter, from 6% in the previous one, well below an already slower 2.7% reading expected by the market.

These figures have dampened expectations of a strong post-pandemic recovery showing evidence that the disruptions in the supply chain and shortages of raw materials are holding companies from meeting the growing demand.

The dovish monetary policy statement by the Bank of Japan has failed to offer any significant support to the USD either. The central bank has reaffirmed the commitment with its ultra-expansive monetary policy, as widely expected, keeping interest rates near zero, and while downgrading their economic growth and consumer inflation forecasts for 2021.

USD/JPY expected slide towards 112.00 in the next three months – Rabobank

From a wider perspective, FX Analysts at Rabobank expect the USD to extend its reversal towards 112.00:  observe the pair in a consolidation phase, ahead of further appreciation: “This may be a warning to the market that in view of the inflationary implications the BoJ is not entirely happy with the JPY’s position at the worst-performing G10 currency in the year to date. This signal may be sufficient to limit upside potential for USD/JPY near-term, particularly since the weakness of US Q3 GDP data has also undermined the greenback today.  We retain a 3 month USD/JPY forecast of 112.”

Technical levels to watch