-
USD/JPY falls toward 147.00, down almost 0.50% on the day, as the Yen strengthens amid improved growth outlook and a weaker US Dollar.
-
Japan’s Q2 GDP exceeds expectations, expanding 0.3% QoQ and 1.0% annualized, supported by solid capital spending and export performance.
-
US data disappoints, with July Retail Sales easing to 0.5% MoM and Industrial Production slipping by 0.1%.
The Japanese Yen (JPY) gained ground against the US Dollar (USD) on Friday, with USD/JPY extending its intraday decline during the American session. The pair dropped nearly 0.50% on the day, trading near 147.00 after retreating from a high of 147.87, as a combination of strong domestic data and broad US Dollar weakness bolstered demand for the safe-haven Yen.
Japan GDP Surprises to the Upside
Japan's preliminary Q2 GDP data exceeded expectations, showing the economy grew 0.3% quarter-over-quarter, beating the 0.1% forecast. On an annualized basis, GDP accelerated to 1.0%, well above the 0.4% estimate. The upside surprise was fueled by a rebound in capital expenditure and resilient export performance, which helped offset weak private consumption. The encouraging data has revived speculation that the Bank of Japan (BoJ) may adopt a more optimistic stance in the coming months, providing further support for the Yen.
In contrast, the US economic picture turned more mixed. July Retail Sales rose 0.5% MoM as expected but slowed from June’s upwardly revised 0.9% gain. Year-over-year, sales decelerated to 3.9% from 4.4%. Industrial Production unexpectedly fell 0.1% in July, reversing June’s 0.3% increase. Consumer confidence also declined, with the University of Michigan’s preliminary August reading falling to 58.6 from 61.7. Additionally, inflation expectations surged — the 1-year view jumped to 4.9%, while the 5-year outlook rose to 3.9%, both above the Fed’s preferred levels.
This combination of slowing economic momentum and persistent inflation risks complicates the Federal Reserve’s policy path. According to the CME FedWatch Tool, markets now assign a 92% probability to a 25 basis-point rate cut in September, down from full pricing earlier in the week following a soft CPI report.
Outlook: Downside Risks for USD/JPY Persist
Looking ahead, USD/JPY may remain under pressure in the near term as diverging fundamentals between Japan and the US drive sentiment. Japan’s stronger growth outlook contrasts with increasing uncertainty in the US, where sticky inflation and softening economic data cloud the Fed’s policy trajectory.
Traders will closely monitor next week’s release of the FOMC meeting minutes, S&P Global US PMIs, and Japan’s national CPI. A dovish tone from the Fed or further signs of US economic slowing could drag the Dollar lower, while a stronger-than-expected Japanese inflation print may reinforce BoJ tightening expectations — both factors favor further downside for USD/JPY.
