Some rays of light in Japan

With all the volatility elsewhere, the yen (and in particular USDJPY) has been notable for its stability. This is certainly the nature of yen in recent years, with long periods of going nowhere and shorter periods of strong trends. The GDP data released overnight have pushed USDJPY to the upper end of the recent range, up to the 121 level for the first time since 20th March. The economy grew 0.6% in Q1, firmer than the anticipated 0.4% gain. There were some promising signs in the data, with a strong 1.1% increase in private demand and the corporate sector looking in better health. Furthermore, measures of real wage growth have been recovering, currently nearly flat in year on year terms, from having been falling nearly 6% last year in the wake of the consumption tax hike. The economy has yet to recover from the hit to demand from that, so the main issues is to see whether this pace of demand is sustained into the current quarter.

The main focus yesterday was with the fall in UK inflation to negative territory, the core rate also falling further to 0.8%. At one point, the pound was down 2 big figures against the dollar, with some partial recovery noted later in the session. Heading the agenda today are the minutes from the April FOMC meeting and also the BoE meeting from earlier this month. The main focus on the US side will be any further hints on where FOMC members are looking for the trigger for future rate hikes. For now, the market has stepped back from looking for a hike until much later this year. This has been a factor undermining the dollar, together with the more recent rise in Eurozone bond yields. That said, the past two sessions have seen a decent dollar recovery, with yesterday seeing EURUSD now below the 1.1150 area, with key support at the 1.1030 level.