Japan's Q3 secondary GDP likely to be upgraded

This week seems relatively quite between ECB and FOMC meetings, with Japan Q3 GDP secondary release and October machinery orders will be key data to be focused on for JPY.

The Q3 GDP is likely to be upgraded to show that Japan actually avoided a technical recession as shown in the preliminary reading. 

"We expect Q3 GDP growth to be revised up to +0.7% q/q saar from -0.8%, mainly reflecting a large upward revision to private capex. We expect October machinery orders to decrease -3.4% m/m after a solid +7.5% gain in September, which would in turn imply a risk that capex would be sluggish in H1 FY16", says Barclays in a research note.

JPY basis swap markets were extremely volatile in last month, while the spot USD/JPY was confined in a narrow range, as expected. The JPY basis stands out both in terms of its magnitude and its timing, in the blowout in global cross-currency basis swap spreads. 

The factors such as Fed hike, year-end pressures and Wall Street Journal article on GPIF hedging likely added to the pressures in JPY basis, along with the structural factors like regulatory constraints on USD supply and strong demand for USD funding by investors.