Japan’s economy grew 0.3% in Q2 2026, below the 0.5% expected, weakening the BoJ’s case for further rate hikes.
The Japanese Yen strengthened against the US Dollar, pushing USD/JPY to 159.10 in Asian trading on Monday. The move followed Japan’s preliminary Q2 GDP data, which showed a 0.3% quarterly expansion, missing the 0.5% consensus forecast and slowing from Q1’s 0.5% growth. Annualized GDP rose 1.1%, well below the 2.0% estimate and Q1’s 1.8% gain.
The weaker-than-expected print complicates the Bank of Japan’s policy outlook, as officials had cited steady domestic demand as justification for further rate hikes. The BoJ recently shifted away from ultra-loose monetary policy, but sluggish growth may delay additional tightening. Meanwhile, the US Dollar faced pressure after July Retail Sales contracted 0.6% month-over-month, below the 0.1% growth forecast.
Strategists noted that the Yen’s recent gains have eased pressure on Japanese policymakers, with modest appreciation providing reassurance amid concerns over the currency’s trajectory.