Following mixed US data, Japanese Yen edges higher from session lows

• USD/JPY retains its prospects of a 0.7% weekly gain despite slipping below 158.00 after the US data releases.
• Despite stronger-than-expected US GDP Growth in Q3, Personal Income and Spending weakened.
• A hawkish hold is the market expectation ahead of Friday's BoJ meeting.

The Japanese Yen (JPY) recovered part of its losses against the US Dollar (USD) on Thursday, with weaker-than-forecast Personal Income and Spending figures tempering optimism over the strong Gross Domestic Product (GDP) reading. Having touched session highs just above 158.00, USD/JPY has pulled back towards 157.90. Even so, the pair remains poised for a 0.7% gain over the week.

According to the US Bureau of Economic Analysis, the economy expanded at an annualised pace of 3.4% in the third quarter. This exceeded the forecast of 3.2% growth and marked an acceleration from 2.2% in the preceding quarter.

What Does the Sharper-Than-Expected Slowdown in Personal Income and Spending Signal?

September's preliminary US Personal Consumption Expenditures (PCE) reading showed a year-on-year increase of 3.6%, compared with 3.4% in August. In contrast, Personal Income growth slowed to 0.2%, missing expectations that it would hold at 0.3%, while Personal Spending growth moderated to 0.5% from 0.9% a month earlier. The figures suggest easing inflationary pressure from consumer demand, lending support to Fed Chairman Kevin Warsh's confidence in the bank's monetary policy.

Interest rates were kept unchanged on Wednesday by the Federal Reserve (Fed), in line with broad expectations. Warsh’s subsequent remarks to the press were viewed as dovish. Expressing confidence that the “monetary medicine is starting to work”, he also affirmed that the bank might bring inflation to its 2% target without needing to “throw people out of work”.

A modest pullback 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 anticipate.

Attention now turns to the Bank of Japan (BoJ) ahead of its monetary policy announcement during Friday’s Asian session. Expectations are for unchanged interest rates alongside a signal of another rate increase in December; any departure from that outcome would unsettle markets. A rate hike is ruled out, while any suggestion that the unwritten convention of quarterly rate increases may not hold is likely to trigger a sharp fall in the Yen.