Mixed US data leave Japanese Yen edging up from session lows

• Following the US data releases, USD/JPY slips below 158.00, though a 0.7% weekly gain remains in sight.
• Stronger-than-forecast US GDP growth in Q3 contrasts with declines in Personal Income and Spending.
• A hawkish hold is anticipated by markets at Friday’s BoJ meeting.

Weaker-than-expected US Personal Income and Spending figures tempered optimism over the strong Gross Domestic Product (GDP) reading on Thursday, helping the Japanese Yen (JPY) recover some ground against the US Dollar (USD). From session highs just above 158.00, USD/JPY has slipped back towards 157.90, but the pair is still heading for a 0.7% weekly gain.

At an annualised 3.4%, third-quarter US economic growth exceeded the 3.2% forecast and picked up from 2.2% in the preceding quarter, according to the US Bureau of Economic Analysis.

Personal Income and Spending fall more than forecast

September’s preliminary US Personal Consumption Expenditures (PCE) reading quickened to 3.6% year on year, compared with 3.4% in August. By contrast, Personal Income growth slowed to 0.2%, rather than remaining at 0.3% as expected, while Personal Spending growth dropped from the previous month’s 0.9% to 0.5%. The figures suggest that consumer demand is exerting less inflationary pressure, lending support to Fed Chairman Kevin Warsh’s confidence in the bank’s monetary policy.

As widely anticipated, Wednesday’s decision by the Federal Reserve (Fed) left interest rates unchanged. Warsh’s subsequent remarks to the press were interpreted as leaning towards a dovish stance. Expressing confidence that the “monetary medicine is starting to work”, he also affirmed that the bank might reach its 2% inflation target without needing to “throw people out of work”.

A modest retreat in the US Dollar followed Warsh’s remarks, which were interpreted as suggesting that the bank might need fewer rate increases in 2027 than markets currently expect.

Attention now turns to Friday’s Asian session, when the Bank of Japan (BoJ) is due to announce its monetary policy decision. Expectations are for unchanged interest rates alongside a signal of another increase in December; any departure from that would be disruptive. An immediate rate rise is out of the question, while any suggestion that the unwritten rule of quarterly increases might not hold is likely to trigger a sharp fall in the Yen.