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USD/JPY at 2021 Highs after Q4 GDP Growth at 3.0%

USD/JPY is at the highest point of the year with 3.0% GDP growth for the fourth quarter of 2020. Covid vaccination contributes to growing positive sentiment.

The USD/JPY currency pair moved towards the year highs at 105.81 during trading hours on Tuesday, where the 200 DMA is also placed.

The US Covid relief plan and the vaccination drive bring a bullish trading sentiment, which has strengthened the third most traded currency.

USD/JPY Climbs Higher to 2021 High Levels

The USD/JPY moved lower to 102.50 levels in the first week of January 2021 but climbed higher in the first week of February. However, the strong resistance at 105.50 levels brought the greenback against the Japanese yen lower to 104.50. The currency pair has reclaimed lost ground and has closed at 105.70 levels on Tuesday, 16th February.  The currency now waits for economic conditions in Japan and from countries across the globe for further direction.

A move upwards for four consecutive days shows bullish momentum. On the downside, 104.50 provides strong support, which is the low formed on 10th February.

USD/JPY moves to 2021 High Levels
USD/JPY moves to 2021 High Levels

Better GDP Data Pushes USD/JPY Higher

GDP figure at 3.0% is better than the forecast figure at 2.3%. The data has boosted investor sentiment pushing the USD/JPY pair higher to the year high levels.

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Exports have recovered to bring up the economy, and domestic demand has gone up, say officials. Government spending has aided consumer consumption to a large extent, which is supporting the economy. Trade has resumed, and exports to the US and other countries are expected to increase.

However, Economy Minister Yasutoshi Nishimura says that the economy has to do better, to come back to the pre-pandemic level. The economy continues to lag at 0.2% year-on-year against the forecast at 1.0%. The economy is much below the previous figure at 5.3%.

Household spending has come down in Japan from 1.1% in December 2019 to -1.9% in December 2020. A decline by 0.6%. Clothing and footwear spending has come down along with culture and recreation.

Japan’s Ministry of Economy states that industrial production has come down in December to a seasonally adjusted 1% decline month-on-month. On a yearly basis, it has declined 2.6% from what it was last year. The decline is seen in various industrial sectors such as mining, manufacturing, and utilities. The Tertiary Index has decreased to 97.80 points in December 2020, while it was 98.20 in November.

Leading Economic Indicators in Japan show a drop to 94.9 in December 2020 from the previous value of 96.4%, showing a downward gauge of the economy.

The first quarter of 2021 will continue to be weak as infection cases have gone up in December and new restrictions are implemented. But the economy will pick up once vaccination rolls out faster.

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Japan’s Economy Contracts for Calendar Year 2020

The Japanese economy fell 4.8%, a contraction not seen in a decade, though it has improved in the last three months of 2020. The GDP growth is forecast at 3.9% for the next fiscal year, starting from April.

Bank lending has gone up 6.1% in January 2021, year-on-year, but lower than the 6.2% gain in December. In 2021, the Bank of Japan has kept interest rates unchanged for the short term at -0.1%.

The current account surplus has widened to 1,166 billion yen in December 2020. In the same month last year, it was at 545 billion yen. Primary income surplus and goods and services account surplus has increased.

Economy Watchers Survey shows a drop to 31.20 in January 2021 from 34.30 in December 2020.

Vaccination to Open up Business Activity in Japan

The Japanese economy shrank for the first time since 2009 as a result of the pandemic. New strains of the virus has introduced further restrictions, which has brought in closed borders. However, the vaccination drive is improving sentiment.

Japan has approved its first covid-19 vaccine of Pfizer and has plans to start the inoculation process this week. The economy is expected to improve once the vaccination process moves faster, which will open up the economy and uplift business and trade.

A $3 trillion stimulus from the government has supported the economy through the pandemic. Business activities have been encouraged during the lockdown through work-at-home conditions and maintaining social distancing, which has kept people occupied.

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GBP/JPY

GBP/JPY has moved above the 2020 highs and strives towards the 2019 highs at 147.90. The vaccine inoculation will open the UK economy sooner than other countries, which will improve the economy. The Sterling against the Japanese yen is a highly risk-sensitive currency pair, which will move accordingly.

EUR/JPY

EUR/JPY has strengthened to December 2018 levels, recovering after two years. The euro against the Japanese yen has crossed the resistance at 127.50 and moved ahead to 127.97 on Tuesday, 16th February 2021. After the vaccination campaign, the coronavirus infection is coming down spreading optimism in the economy.

US Dollar Index

The US Treasury yields are at the highest point, and a rally in the US stocks is moving the Japanese yen. The US Dollar Index shows continued weakness, and the USD/JPY may strengthen to 105.90.

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