Synopsis:
ANZ assesses the Japanese Yen (JPY) against the US Dollar (USD), emphasizing the impact of a weaker USD and improved global risk sentiment on JPY. Despite domestic economic challenges, there are signs of emerging price pressures in Japan.
Key Points:
- Economic Overview: Japan's Q1 GDP shows a contraction of 0.5% q/q, reflecting ongoing struggles in private consumption and business activity. March saw a 1.2% y/y decline in household spending.
- Price Dynamics: The private consumption deflator increased to 3.7% y/y in Q1, indicating potential re-emergence of service-related price pressures.
- Future Economic Indicators: Upcoming PMI data, especially service sector price gauges, are crucial and may show strengthening price pressures.
- Monetary Policy Context: These data will help gauge the potential for economic recovery in Q2 and the likelihood of the Bank of Japan moving towards normalization of monetary policy.
- Market Positioning: ANZ notes that USD/JPY movements below 152 may be premature, anticipating a more appropriate trading range of 152–157 given the current economic conditions.
Conclusion:
ANZ maintains a cautious but slightly optimistic outlook for the JPY in the near term, influenced by potential marginal weakening in US yields and the USD. The suggested USD/JPY trading range reflects current economic and financial dynamics.