USD/JPY Extends Its Five-Day Uptrend Above 136.00 On The Back Of a Stronger-Than-Expected Japanese GDP And Diminishing US Default Concerns

USD/JPY falls from its intraday high to 136.35, snapping a five-day winning sequence, as optimistic growth data for Japan are released early on Wednesday. Also exerting downward pressure on the risk barometer pair could be the retreat of the US Dollar as concerns of a US default subside. In spite of this, the Yen pair remains indecisive in the face of hawkish Federal Reserve (Fed) statements and optimistic US data.

According to the preliminary reading of the first quarter (Q1) 2023 Gross Domestic Product (GDP) figures, economic growth in Japan was 0.4% QoQ, versus 0.1% expected and 0.0% previously. Following the publication of the data, a Japanese government official stated, "Japan's Q1 GDP posts the first QoQ gain in three quarters."

Also see: Japan's first quarter GDP improves to 0.4% from 0.1% expected and 0.0% previously.

On the other hand, US Retail Sales increased 0.4% month-over-month in April, up from -0.7% in March (revised) and 0.4% expected. Moreover, Retail Sales Control Group for the aforementioned month exceeded market expectations of 0.0% and -0.4% prior with a 0.7% actual figure, while Retail Sales excluding Autos for April matched 0.4% MoM expectations surpassing the -0.5% prior. In addition, the US Industrial Production MoM for April rose to 0.5%, exceeding expectations of 0.0%.

Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic recently defended the US central bank's hawkish actions at a conference hosted by the Federal Reserve Bank of Atlanta by citing inflation woes. Previously, Thomas Barkin of the Federal Reserve Bank of Richmond stated in an interview with the Financial Times (FT) that there is no impediment in my mind to further rate increases if inflation persists or, God forbid, accelerates. In the same vein, Loretta Mester, president of the Federal Reserve Bank of Cleveland, stated, "I don't think we're at that hold rate yet."

The meeting between US President Joe Biden and top congressional Republican Kevin McCarthy lasted less than an hour and raised hopes for a positive outcome, as congressional leaders stated, "A deal could be reached by the end of the week." Following the news, Reuters cites S&P Global Market Intelligence data and notes a decline in one-year US Credit Default Swap (CDS) spreads from 164 to 155 basis points (bps). Spreads on five-year CDS decreased from 72 basis points on Monday to 69 basis points on Tuesday.

It should be noted that Bank of Japan (BoJ) officials have defended easy money policy, thereby maintaining the monetary policy divergence between the Fed and the BoJ, which propels the USD/JPY exchange rate.

In addition to the Japanese GDP, recent expectations for increased private investment in Japan also influence on the USD/JPY exchange rate. According to the Japanese newspaper Yomiuri, Prime Minister Fumio Kishida intends to pursue chip companies' active investment in Japan and cooperation with Japanese firms.

Aside from this, US Treasury bond yields continue to rise after a notable rally, while S&P500 Futures post modest gains to defy Wall Street's negative performance.

Japan's Industrial Production for March will precede the United States' Building Permits and Housing Starts for April on the calendar for today. For unambiguous directions, the US debt ceiling updates and Fed-BoJ divergence will receive the most attention.