Japan GDP Grew More than Expected, Yen Steady

According to data released in the Asian session, Japan's economy expanded at a faster than expected pace of 0.9% qoq in Q1, compared to the consensus of 0.7% qoq. That's a notable improvement from Q4's 0.0% qoq. And, translated into annualized rate of 3.5% growth, that's also the fastest of the year. It's noted that solid personal consumptions and better than expected exports, thanks to the yen's depreciation were factors contributing to growth. Prime minister Abe's first two arrows of monetary and fiscal stimulus had positive impacts on the economy. Markets will look forward to his third arrow of structural reforms. Nonetheless, note that the GDP deflator dropped more than expected by -1.2% yoy, the steepest since 2011. That suggested that deflation remains a challenge or Japan.

The yen was steady in range in the Asian session without much reaction to the data. The Nikkei dropped back below the 15000 handle today, as investors took profits. The USD/JPY lost some momentum after hitting 102.75 overnight, while other other yen crosses are staying in consolidations. The U.S. 30 year yield edged higher to 3.199%, but ended lower at 3.159% while 10 year yield edged to 1.975%, but ended lower at 1.943%. Momentum loss in U.S. yields might limit the USD/JPY rally for a while.

The dollar also lost some momentum after other major currencies followed weaker than expected data from the U.S. overnight. However, there is no sign of topping in the greenback yet. Focus will turn to a bunch of economic data from U.S. due today. The CPI is expected at 1.3% yoy in April, while core CPI is expected to drop slightly to 1.8% yoy. The initial jobless claims data will be closely watched, and is forecast to rise slightly to 330k in the week ending May 11. The New residential construction report and Philly fed survey will also be released.