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USD/JPY slides toward 147.00 as Japan GDP beats forecasts, US data disappoints

  • USD/JPY drops toward 147.00, down nearly 0.50% on the day, as the Yen gains on growth optimism and broad US Dollar weakness.
  • Japan Q2 GDP beats expectations, rising 0.3% QoQ and 1.0% annualized, driven by capital expenditure and exports.
  • US Retail Sales slow to 0.5% MoM in July and Industrial Production contracts by 0.1%.

The Japanese Yen (JPY) strengthens against the US Dollar (USD) on Friday, with USD/JPY extending its intraday decline during the American session, supported by stronger domestic growth data and signs of softening momentum in the US economy.

At the time of writing, the pair is trading near 147.00, retreating from a daily peak of 147.87 and down nearly 0.50% on the day, as safe-haven flows underpin the Yen amid a broad US Dollar pullback.

Japan's preliminary Gross Domestic Product (GDP) for the second quarter surprised to the upside, with the economy expanding 0.3% QoQ, beating the 0.1% estimate. On an annualized basis, growth accelerated to 1.0%, well above the consensus forecast of 0.4%. The upside surprise was driven by a rebound in capital expenditure and resilient exports, which helped offset the drag from tepid private consumption. The positive data reinforced speculation that the Bank of Japan (BoJ) may adopt a more confident tone in the coming months, further supporting the Yen.

On the other side of the equation, a batch of mixed US macroeconomic data added to the Dollar’s woes. While Retail Sales in July rose 0.5% MoM, in line with expectations, the figure marked a slowdown from the upwardly revised 0.9% in June. On an annual basis, Retail Sales eased to 3.9% from 4.4%. Industrial Production unexpectedly contracted by 0.1% in July, a notable pullback from June’s revised 0.3% gain. Consumer sentiment also softened, with the preliminary University of Michigan Consumer Sentiment Index for August dropping to 58.6 from 61.7, while long-term inflation expectations spiked — the 1-year outlook surged to 4.9% and the 5-year view rose to 3.9%, both notably above the Federal Reserve’s comfort zone.

The data combination paints a complex picture, while disinflation pressures persist, sticky core prices and elevated inflation expectations temper the case for aggressive easing. According to the CME FedWatch Tool, traders now see a 92% chance of a 25 basis point rate cut in September, down from fully pricing it in earlier this week after a soft Consumer Price Index (CPI) print.

Looking ahead, USD/JPY could remain vulnerable in the near term as risk sentiment and interest rate expectations continue to drive flows. The widening divergence between Japan’s improving domestic fundamentals and the increasingly uncertain US growth-inflation dynamic may keep the pair under pressure.

Investors will turn their attention to next week’s FOMC minutes, S&P Global US PMIs, and Japan’s national CPI report. Any signs of dovish tilt from the Fed or further signs of economic moderation could weigh further on the US Dollar, while stronger-than-expected inflation out of Japan may revive BoJ tightening speculation — both favoring downside in USD/JPY.

Author

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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