USD/JPY subdued above 104.00 as key risk events loom later this week

• In fitting with a subdued mood to FX trade on Tuesday, USD/JPY trades flat just above 104.00.
• JPY has shrugged off domestic news and focused on key risk events later in the week.

FX markets are fairly tentative on Tuesday, as markets seemingly look ahead to key risk events later in the week such as the ECB meeting, EU council summit, UK PM Johnson’s visit to Brussels to attempt to clinch a Brexit deal and the potential for the FDA to approve Pfizer’s Covid-19 vaccine by the end of the week. Thus, USD/JPY remains subdued just to the north of the 104.00 level, with a further drop in US real and nominal yields helping keep the pair supported just above the big figure. On the day, the pair is flat.

JPY shrugs off Japanese data, stimulus news

Stronger than expected final Japanese GDP numbers for Q3 did little to help JPY during Tuesday’s Asia session; GDP growth in the quarter was revised higher to 5.3% QoQ from 5.0% in the prior estimate, with the annualised rate of quarterly GDP growth jumping to 22.9% from 21.4%. Thus, Tuesday’s data confirmed that the Japanese economy grew at the fastest pace since data records began back in 1994. Meanwhile, Household Spending data for October was strong, with spending rising 2.1% versus expectations for a 1.0% rise on the month.

Meanwhile, JPY was largely unfazed after the government delivered its widely expected third supplementary budget of the year, involving roughly JPY 40T in direct fiscal spending and initiatives targeted at reducing emissions and boosting digitalisation.

Looking ahead, JPY traders will be watching the release of Core Machinery Orders data at 23:50GMT, which is expected to show a 2.8% MoM rise in orders in October, but with orders still down 11.3% YoY. But as has already been the case this week, Japanese data is set to play second fiddle to the broader themes dominating markets at the moment.