Japanese Yen gains against weaker US Dollar following softer Q2 GDP data

Japan’s Preliminary Q2 GDP grew 0.3% quarter-over-quarter, missing expectations of a 0.5% expansion.
Annualized GDP reached 1.1%, complicating the Bank of Japan's path toward further rate hikes.
US Retail Sales fell 0.6% in July, lowering market expectations for upcoming Fed rate hikes.

Akhtar Faruqui FXStreet

USD/JPY loses ground for the second successive day, trading around 159.10 during the Asian hours on Monday. The pair depreciates as the Japanese Yen JPY) remains stronger following the release of Japan’s preliminary Q2 Gross Domestic Product (GDP) data.

Japanese economy expanded 0.3% over the quarter in Q2 2026, following a 0.5% growth in Q1 and falling short of market expectations of 0.5%. On an annualized basis, Japan’s GDP grew 1.1%, compared with forecasts of 2.0% and the previous quarter’s 1.8% growth. A GDP print this far below expectations complicates the Bank of Japan's (BoJ) path toward further policy normalisation, given the central bank has been leaning on steady domestic demand to justify additional rate hikes after moving away from ultra-easy policy.

Yen steadies as Japan officials take comfort in recent gains

Strategists at Scotiabank note that the recent firming in JPY is easing some of the pressure on policymakers, with the “modest gains” in the currency “likely providing considerable reassurance to key officials at the Ministry of Finance, given ongoing concerns about the yen’s downward trajectory.”

Meanwhile, the USD/JPY pair depreciates as the US Dollar (USD) edges lower amid weaker-than-expected US economic data and shifting central bank expectations. Retail Sales in the United States fell by 0.6% month-over-month in July, following a 0.2% rise in June, coming in below the market consensus of 0.1% growth. On an annual basis, Retail Sales rose 5.0% in July compared to 6.8% in the previous month.

Consequently, traders have reduced their bets on Federal Reserve rate hikes following a slew of softer US data, including CPI, PPI, and Retail Sales. Markets are now pricing in a 33.1% chance of a rate hike next month, down from 44% last week according to the CME FedWatch tool.

Economic Indicator

Gross Domestic Product Annualized

The Gross Domestic Product (GDP), released by Japan’s Cabinet Office on a quarterly basis, is a measure of the total value of all goods and services produced in Japan during a given period. The GDP is considered as the main measure of Japan’s economic activity. The data is expressed at an annualized rate, which means that the rate has been adjusted to reflect the amount GDP would have changed over a year’s time, had it continued to grow at that specific rate. Generally, a high reading is seen as bullish for the Japanese Yen (JPY), while a low reading is seen as bearish.

GBP/USD hits multi-week tops around 1.3560

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EUR/USD pops to fresh two-month highs, targets 1.1600

EUR/USD advances markedly, revisiting the upper 1.1500s for the first time since mid-June. The pair’s sharp uptick comes on the back of a strong retracement in the US Dollar amid BoJ intervention chatter and despite steady uncertainty in the Middle East.

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Week ahead: Summer lull could be tested by geopolitics and central bank expectations

It has been a relatively monotonous week, with the US dollar desperately trying to recover from last Friday’s nonfarm payrolls-induced losses, the main equity indices trading mostly sideways amidst a quiet earnings calendar, and sovereign bond yields reminding everyone of their pivotal role in the current financial system. These market moves are partly connected to the Middle East developments.

Weekly focus: Some relief in US inflation concerns

Actual inflation data for July came out as expected with a 0.1% m/m increase in headline CPI and 0.2% excluding food and energy. Annual headline inflation remains too high at 3.4% and means that wage earners are experiencing stagnating spending power at best, and core inflation is a bit higher than the inflation target of two percent would suggest.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.