USD/JPY breaks higher. Nikkei 225 next?

Japan’s massive export sector is firing on the back of weakness in the yen, demonstrated by the significant contribution made to Japan’s GDP today from net exports in the June quarter. With the USD/JPY breaking to fresh highs on Monday, it begs the question whether there’s further upside to come for the exporter-heavy Nikkei 225?

Japanese exporters fire in the June quarter

Japan’s GDP blew even the most optimistic forecast out of the water in Q2, growing by an impressive 1.5% over the period, nearly doubling the median estimate offered to Reuters. However, underneath the headline figure, the details were less impressive unless you’re a Japanese exporter. Domestic demand detracted from quarterly growth, declining 0.3%, reflecting a substantial 0.5% contraction in household consumption. That may reflect the influence of broadening inflationary pressures with the quarterly deflator – a broad measure of inflation across the economy – increasing 3.4% from a year earlier, the fastest pace since 1981.

But those headwinds were more than counteracted by strong external demand with net exports adding 1.8% for the quarter, helped by 3.2% lift in export volumes over the period. Exporters are clearly enjoying tailwinds from the weaker Japanese yen, making their goods and services more competitive to the global marketplace.

USD/JPY breakout may add to corporate earnings tailwinds

After an exploratory probe above the figure in Asia on Monday, the USD/JPY closed convincingly above 145 in New York, signalling the potential for the pair to make a run back towards the multi-decade highs just below 152 in October last year. Given the lack of concern expressed about the latest leg higher from Japan’s Ministry of Finance, buyers may emerge on pullbacks towards the 145 level.

Further yen weakness may add to tailwinds for Japanese exporters, potentially pointing to renewed upside in the Nikkei 225 which is laden with some of the largest and most recognisable global brands worldwide.

-- Written by David Scutt

Follow David on Twitter @scutty

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.