The USD/JPY has been on a downward trend for three consecutive days. The pair started the new week lower after the release of Japan’s gross domestic product (GDP) for the second quarter. The pair was trading 0.22% lower at 109.38.

Japan’s Inflation Outlook

According to data released on Monday, Japan’s economy bounced back more than expected. The country’s economy took a nosedive for the first three months of this year. The rebounding of Japan’s economy hints at recovery in consumption and capital expenditure after the pandemic’s initial hit.

However, analysts expect the economic growth to slow down in the current quarter. The government reimposed a state of emergency to curb the spread of the virus hence weighing heavily on household spending.

Japan’s gross domestic product jumped an annualized 1.3% in the second quarter, up from a 3.9% slump in the first quarter. It beat the median estimates for a 0.7% increase.

However, being the world’s third-largest economy, the growth was still weaker compared to other advanced economies. The United States, the largest economy in the world, jumped 6.5% in its annualized economic growth.

The GDP grew 0.3% on a quarter-on-quarter basis. It was better than the median market forecast for a 0.2% gain. It also jumped from the previous 1.0% decline.

According to data by the Cabinet Office, capital expenditure advanced 1.7% while consumption rose 0.8% in the same quarter. Exports rose 2.9%, while domestic demand increased 0.6%.

USD/JPY pair will react to the US Retail Sales data for July later in the week. Economists expect the monthly retail sales to decline 0.2% due to the disruptions caused by the Delta variant. The core retail sales are expected to increase, albeit at a slower pace.

USD/JPY Technical Analysis

On the four-chart, the USD/JPY pair has formed a bearish outlook. It is trading more than 2% below its highest level in July.

The currency pair is trading below the 25 and 50-day exponential moving averages, signaling an extension of the downward trend.

Therefore, the pair is likely to continue with its decline to find support at 107.800. However, a move past the 25-day EMA at 110.110 will invalidate this view, making the next target at 110.800.


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