USD/JPY prods five-day uptrend above 136.00 on upbeat Japan GDP, receding US default fears

• USD/JPY retreats from intraday high, stays sluggish around two-week top, after strong Japan GDP growth.
• Hawkish Fed bets, upbeat US data favor Yen pair buyers.
• US policymakers appear optimistic about avoiding default after the latest debt ceiling talks.
• Second-tier US, Japan data eyed for intraday clues, risk catalysts are the key for clear directions.

USD/JPY eases from intraday high to 136.35 as it snaps the five-day winning streak on upbeat Japan growth numbers published early Wednesday. Also exerting downside pressure on the risk barometer pair could be the US Dollar’s retreat amid easing fears of the US default. Even so, the Yen pair remains indecisive as hawkish Federal Reserve (Fed) statements join upbeat US data.

Japanese economic growth came in as 0.4% versus 0.1% expected and 0.0% prior, per the preliminary reading of the first quarter (Q1) 2023 Gross Domestic Product (GDP) figures. Following the data release, a Japanese government official said, “Japan's Q1 GDP posts the first QoQ gain in three quarters.”

Also read: Japan Q1 GDP improves to 0.4% QoQ versus 0.1% expected, 0.0% prior

On the other hand, US Retail Sales improved to 0.4% MoM for April, from -0.7% prior (revised) versus 0.7% expected. More importantly, Retail Sales Control Group for the said month crossed market forecasts of 0.0% and -0.4% prior with 0.7% actual figure whereas Retail Sales ex Autos matches 0.4% MoM estimations for April¸ surpassing the -0.5% prior. Further, the US Industrial Production MoM rose to 0.5% for April versus expectations of printing a 0.0% figure.

Recently, Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic defended the US central bank’s hawkish moves by citing inflation woes as they spoke at a conference hosted by the Federal Reserve Bank of Atlanta. Previously, Richmond Fed Thomas Barkin said in an interview with the Financial Times (FT) that if inflation persists, or God forbid accelerates, there’s no barrier in my mind to further increases in rates. On the same line, Cleveland Fed President Loretta Mester said, “I don’t think we're at that hold rate yet.”

Elsewhere, US President Joe Biden and top congressional Republican Kevin McCarthy’s meeting ended within an hour and raised expectations of positive development as congressional leaders, said, "It is possible to get a deal by the end of the week." Following the news, Reuters quotes the S&P Global Market Intelligence data while marking a fall in the one-year US Credit Default Swap (CDS) spreads from 164 basis points (bps) to 155 bps. “Spreads on five-year CDS decreased to 69 basis points from 72 bps on Monday,” reported the news.

It should be noted that the Bank of Japan (BoJ) officials have been defending easy money policy and hence keeping the monetary policy divergence between the Fed and the BoJ intact, which in turn propel the USD/JPY prices.

Apart from the Japanese GDP, recent hopes of more investment by private firms in Japan also weigh on the USD/JPY pair. That said, Japanese media Yomiuri mentioned that Prime Minister Fumio Kishida plans to seek chip firms' active investment in Japan and cooperation with Japanese companies.

Elsewhere, US Treasury bond yields grind higher after posting a notable rally whereas S&P500 Futures print mild gains to defy Wall Street’s downbeat performance.

Looking forward, Japan's Industrial Production for March will precede the US Building Permits and Housing Starts for April to decorate today’s calendar. However, major attention will be given to US debt ceiling updates and Fed-BoJ divergence for clear directions.

Technical analysis

Unless dropping back below the early-month top surrounding 135.50, the USD/JPY remains capable of marking another attempt in crossing the 200-DMA hurdle of around 137.10.