USD/JPY trims losses below 154.50 following Japan’s GDP data

• USD/JPY trades on a softer note around 154.45 on Thursday.
• Japanese GDP contracted 0.5% QoQ in Q1 vs. 0.1 in Q4 of 2023, weaker than the expectation of a 0.4% contraction.
• The softer US CPI inflation data raised the odds for a Federal Reserve (Fed) rate cut in 2024.

The USD/JPY pair trims losses near 154.45 during the early Asian session on Thursday. The softer US CPI inflation data has exerted some selling pressure on the US Dollar (USD). However, the major pair recovers modestly following the recent weaker-than-expected Japan’s Gross Domestic Product (GDP) in the first quarter of 2024. 

Japan’s economy contracted in the first three months of 2024, according to the Cabinet Office showed on Thursday. The preliminary Japanese GDP shrank 0.5% QoQ in Q1 from 0.1 expansion in Q4 of 2023, weaker than the expectation of a 0.4% contraction. The Annualized GDP contracted 2.0% versus the estimation of 1.5% contraction and 0.4% expansion prior. The Japanese Yen (JPY) attracts some sellers following the weaker-than-expected Japan’s GDP growth number. 

On Wednesday, the US Consumer Price Index (CPI) inflation eased to 3.4% YoY in April from an increase of 3.5% in March, in line with market expectations. The core CPI inflation, which excludes volatile food and energy prices, retreated to 3.6% YoY in April from the previous reading of 3.8%, matching the consensus, the US Bureau of Labor Statistics (BLS) reported on Wednesday. Additionally, US Retail Sales showed no change in April from a 0.6% increase in March, below the market consensus of 0.4%.

The softer inflation data raised the odds for a Federal Reserve (Fed) rate cut in 2024. Financial markets expect the Fed to wait for more evidence of better inflation data. Fed Chair Jerome Powell said on Tuesday that inflation in the US might prove to be more persistent than expected, keeping the Fed holding rate higher for longer to achieve the central bank’s 2% target. Investors have priced in nearly a 72% chance of a rate cut by the Fed in September 2024, a rise from 65% before the release of US CPI data, according to the CME's FedWatch Tool.

(This story was corrected on May 16 at 02:20 GMT to say, in the third paragraph, “the US Retail Sales showed no change at 0% in April from an 0.6% increase in March”, not an 3% increase)