EUR/JPY: the Yen is up despite a declining GDP

The Japanese yen was the star of last week's trading week. It rose against most of its counterparts, despite Japan's Gross Domestic Product (GDP) falling for the second month in a row.

An important week for the Japanese Yen came to an end. It appreciated against its peers, strengthening against rivals such as the EUR, GBP and AUD.

This is surprising given the data that was released from Japan this week. Nevertheless, the Japanese Yen is considered a special currency, acting as a safe haven and closely correlated to the price action in the stock markets.

Japan's GDP declined for the second consecutive month in May, albeit marginally. Adjusted for inflation, it fell by 0.03%. The recovery is stalling, but that hasn't stopped the Japanese yen from strengthening.

Passenger car production weighs on Japan's GDP

Durable goods and the service sector were the hardest hit, while passenger car production also declined. The shortage of semiconductors is the cause, and this situation is expected to continue in the coming months. On the positive side, capital investment by private companies increased by 0.6 percent. Overall, imports and exports declined by 2.5% and 0.3%, respectively.

The Japanese yen outperformed last week, as seen in the price action on the EUR/JPY chart below. Since the beginning of the previous trading week, the Japanese yen has been in high demand, with no pullbacks.

Household spending surprised on the upside this week. It rose 11.7% year-over-year, against expectations of 11%, which fueled the yen's strength.

In addition, the leading indicators for Japan, a composite index level that includes eleven indicators, suggested that the economy is in good shape. In addition, economic observer sentiment improved again, rising to 47.5 from expectations of 34.

For the remainder of the month, the main driver for the Yen may be price movements in the stock markets. With the Olympics being held without spectators, the Japanese economy will not benefit from the usual influx of tourists during such an event. This could end up costing the Japanese a few percentage points of annual economic growth.