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Yen falls on growth woes

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Yen falls on growth woes

The yen declined almost 1 percent against the US dollar Tuesday as market participants continued to weigh Japan’s unexpected slowdown. Earlier in the week Japan produced second quarter GDP data, which fell well below consensus forecasts. Economic growth slowed to 2.6 percent over Q2, compared to 3.8 percent the previous quarter. The consensus had Q2 growth pegged at 3.8 percent. Less robust growth has raised flags about the Bank of Japan’s stimulus program, and whether it will be enough to invigorate growth over the next two years.

The USDJPY plowed through the 98.00 handle in Tuesday’s European and North American sessions, consolidating at 98.2355. Trading inversely with the yen was the NIKKEI, which jumped more than half a percent to 13,938.47. Japan’s benchmark gauge has experienced a series of volatile sessions over the past week, but has managed to pull ahead, gaining more than 0.8 percent over that period. Japan’s Topix index advanced three quarters of a percent Tuesday, holding onto its position as the best performing developed equity market. The Topix index was supported Tuesday on optimism Prime Minister Shinzo Abe will succeed in pushing through corporate tax reforms.

The USDJPY pair also drew support from Abe’s proposed tax reforms, which promise to cut corporate taxes in order to offset raising the consumption tax. The pair’s outlook is slightly bearish, although signs of an oversold situation have evaporated. Initial supports are found at 97.54 and 97.29. On the upside, resistance is faced at 99.04 and 99.24.

The USDJPY has been one of this year’s most volatile trades. Year-to-date, the pair has gained more than 12 percent, but not without a myriad of violent swings in opposite directions. The pair’s volatility will be tested Thursday when the United States produces its annualized Consumer Price Index for July.

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