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Japan: First quarter GDP contracts 0.5% quarter-on-quarter compared to -0.4% expected

He Japanese Gross Domestic Product (GDP) in the first quarter stood at -0.5% quarter-on-quarter, compared to the -0.4% expected and the previous 0%, as announced on Thursday by the Japanese Cabinet Office.

Furthermore, annualized GDP contracted 2.0%, compared to the expected 1.5% contraction and 0.4% expansion previously.

Frequently Asked Questions about the Japanese Yen

What factors determine the price of the Japanese Yen?

The Japanese Yen (JPY) is one of the most traded currencies in the world. Its value is determined broadly by the performance of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of Japanese and US bonds or the risk sentiment among traders, among other factors.

How do decisions by the Bank of Japan affect the Japanese Yen?

One of the mandates of the Bank of Japan is currency control, so its movements are key for the Yen. The BoJ has intervened directly in currency markets on occasion, usually to lower the value of the Yen, although it often refrains from doing so due to the political concerns of its major trading partners. The BoJ's current ultra-loose monetary policy, based on massive stimulus to the economy, has caused the depreciation of the Yen against its main currency pairs. This process has been exacerbated more recently by a growing policy divergence between the Bank of Japan and other major central banks, which have opted to sharply raise interest rates to combat decades-old levels of inflation.

How does the spread between Japanese bond yields and US bond yields affect the Japanese Yen?

The Bank of Japan's ultra-loose monetary policy stance has led to increased policy divergence with other central banks, particularly the US Federal Reserve. This favors the widening of the spread between US and Japanese 10-year bonds, which favors the Dollar against the Yen.

How does general risk sentiment influence the Japanese Yen?

The Japanese Yen is often considered a safe haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. In turbulent times, the Yen is likely to appreciate against other currencies that are considered riskier to invest in.

Source: Fx Street

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