US dollar managed to snap its four-day losses against the Japanese yen on Thursday amid speculation that Japanese government intended to pledge to “promptly” begin a study on cutting the effective corporate tax rate in the country, while markets awaited also the GDP report out of the United States, scheduled for release later in the day.
USD/JPY reached a session high at 99.10 at 2:38 GMT, after having fallen to 98.27 earlier. The pair found consolidation at 98.95, still gaining 0.51% for the day. Support was likely to be received at September 25th low, 97.77, while resistance was to be encountered at September 20th high, 99.67.
The Topix index of Japanese equities gained 0.7%, following earlier loss of 1.6%, while the Nikkei 225 index rose 1.2%, after having dropped 1.4%.
“The yen’s correlation to the Japanese equity market is increasing and it’s being sold on the risk-on trade as domestic stocks rebound,” said Marito Ueda, the senior managing director at FX Prime Corp. (8711) in Tokyo, cited by Bloomberg.
Japanese Prime Minister Shinzo Abe will announce a stimulus package on October 1st at the same time as his decision on whether to increase the sales tax in the country. The tankan survey from Bank of Japan (BoJ) is considered of utmost importance to Abe’s plan to push through the tax raise. Japanese PM is intending to raise the sales tax to 8% from the current 5%, but only in case economy demonstrated signs of improvement.
Meanwhile, the Japanese currency has been boosted as safe haven asset earlier in the week due to market uncertainty and more specifically, the uncertainty in a medium term over the future of Federal Reserve Banks stimulus program. US central banks decision not to taper last week surprised global markets. Additionally, fiscal policy concerns appeared, because with government funding set to expire on October 1st, a date which marks the beginning of the next fiscal year, and as the Treasury expected to lose its ability to borrow funds in mid-October, the federal offices have begun considering the possibility of a shutdown.
Today investors attention will be focused on the report on the final value of US Gross Domestic Product, as median estimates pointed an expansion by 2.6% on annual basis during the second quarter. According to previous estimate, US economy expanded by annualized 2.5%. Another anticipated report will show the weekly performance of initial jobless claims in the country, as projections pointed an increase to 325 000 from 309 000 during the preceding week. An upward revision of the GDP and lesser than expected number of claims will certainly provide support to the US dollar.
Elsewhere, the yen was losing ground against the euro, with EUR/JPY cross up by 0.51% for the day to trade at 133.85 at 6:54 GMT. GBP/JPY pair was advancing 0.55% to trade at 159.19 at 6:57 GMT. All in all, the Japanese yen has dropped 4.4% during the past three months, or the largest decline among the 10 developed-nation currencies, tracked by Bloomberg Correlation Weighted Indexes. The US dollar has decreased 3.1%, while the euro has appreciated 1.1%.
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