Fed funds futures now price a 66.9% chance of no September hike, overshadowing Japan’s Q2 GDP miss of 1.1% annualized growth.
The yen climbed 0.2% to 159.055 against the dollar, extending modest gains despite Japan’s weaker-than-expected Q2 GDP. The economy grew 1.1% annualized, missing forecasts of 2.0%, while quarterly growth hit 0.3% versus 0.5% expected.
Traders are focusing on shifting Fed expectations rather than domestic data, with markets pricing a two-thirds probability the Fed holds rates steady next month. The yield differential between US and Japanese bonds has narrowed, limiting the yen’s upside despite the GDP miss.
The Bank of Japan’s tightening path remains intact, as underlying inflation stays above target. The policy divergence between a cautious Fed and a still-hawkish BOJ continues to support the yen, though recent moves stem largely from US rate repricing.