Japanese yen rises on increased probabilities that the Bank of Japan will adopt a hawkish approach in the face of strong GDP figures.

On Thursday, the Japanese yen (JPY) gained momentum versus the US dollar (USD). This increase occurred when Japan’s Gross Domestic Product (GDP) growth for the second quarter exceeded estimates, bolstering the argument for a near-term interest rate hike by the Bank of Japan.
Yoshitaka Shindo, the Japanese Economy Minister, stated that the economy Expected to recover gradually as wages and income rise. Shindo also stated that the government will work closely with the Bank of Japan to develop a flexible macroeconomic policy.

US dollar rises on improved Treasury yield despite increased forecasts of a Fed rate drop in September.

The Japanese yen pair, on the other hand, benefited from a stronger US dollar and higher Treasury yields. However, the Greenback’s potential for further gains may be limited by rising expectations of a 25 basis point rate decrease by the US Federal Reserve (Fed) in September.
The mild US Consumer Price Index (CPI) data has spurred speculation regarding the size of the Fed’s potential rate drop in September. Traders expect a more moderate 25 basis point decrease with a 60% chance, while a 50 basis point drop remains on the table. According to CME. According to FedWatch, the greater cut has a 36% chance of occurring in September.

Daily Market Movers: Japanese Yen falls amid positive GDP figures.

Japanese yen (JPY) gained momentum versus the US dollar (USD). Japan’s GDP increased by 0.8% quarter on quarter in Q2, exceeding market expectations of 0.5% and recovering from a 0.6% drop in Q1. This was the highest quarterly growth since Q1 2023. Meanwhile, annualized GDP growth rose to 3.1%, beating the market forecast of 2.1% and reversing a 2.3% drop in Q1. This was the strongest annual expansion since the second quarter of 2023.

On Wednesday, Federal Reserve Bank of Chicago President Austan Goolsbee indicated greater concern about the labor market rather than inflation, citing recent pricing pressure improvements in the face of lackluster job data. Goolsbee further stated that the extent of rate According to Bloomberg, cuts will be based on current economic conditions.
The US headline Consumer Price Index (CPI) increased 2.9% year on year in July, slightly lower than the 3% increase in June and below market expectations. The Core CPI, which excludes food and energy, rose 3.2% year on year, slightly lower than the 3.3% increase in June but in line with market expectations.
Japanese Prime Minister Fumio Kishida stated at a press conference on Wednesday that he will not run for re-election as leader of the Liberal Democratic Party (LDP) in September. Kishida underlined the need to tackle Japan’s deflation-prone economy by supporting wage and investment development, with the objective of expanding the country’s GDP to ¥600 trillion.
Jane Foley, Rabobank’s senior FX strategist, notes that this week’s series The release of US statistics, as well as next week’s Jackson Hole gathering, could give the market with more clarity into US officials’ likely responses. However, their major forecast is that the Fed would decrease interest rates by 25 basis points in September and possibly again before the end of the year.

Fed will meet its 2% inflation target.

On Tuesday, Atlanta Fed President Raphael Bostic noted that recent economic data has reinforced his confidence that the Fed will meet its 2% inflation target. However, Bostic stated that more data needed before he will approve a rate cut, according to Reuters.
The Japanese parliament is set to have a special session on August 23 to address the Bank of Japan’s (BoJ) decision to hike interest rates last month. BoJ Reuters reports that Governor Kazuo Ueda is expected to attend the session.
According to the Bank of Japan’s Summary of Opinions from the Monetary Policy Meeting on July 30 and 31, several members feel economic activity and prices are progressing in the expected direction. They aim for a neutral rate of “at least around 1%” in the medium term.

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