Japanese Yen Rallies as Soft 3Q GDP Data Fuels Risk Aversion

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Talking Points:

• Japan’s GDP Unexpectedly Shrank -1.6% q/qin 3Q vs.-7.3% in 2Q

• The Yen Initially Fell But Swiftly Recovered and Rallied After the Data

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Japan’s GDP unexpectedly contracted, with output shrinking 1.6% in the third quarter. The outcome was worse than the 2.2 percent increase expected by economists, though the decline was smaller than the second-quarter drop of 7.3 percent. According to Japan’s Economics Minister Amari, the biggest reasons for the drop in GDP may have been inventory adjustments, a decline in consumer confidence, and bad weather.

The Japanese Yen spiked downward as the GDP report came across the wires but swiftly reversed course, with prices on pace to produce the largest increase in a month against the US Dollar. The initial drop probably reflected the implications of slowing growth for the fate of a forthcoming sales tax increase, which may now be delayed. The subsequent recovery appeared to be a function of risk sentiment trends. Indeed, USD/JPY fell alongside Japan’s benchmark Nikkei 225 stock index, suggesting risk aversion was behind the surge in Yen demand.

USD/JPY 5min Chart - Created Using FXCM Marketscope

Japanese Yen Rallies as Soft 3Q GDP Data Fuels Risk Aversion

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