Yen fed rate bets lifted the Japanese currency on Monday, as traders cut back expectations for a Federal Reserve rate hike despite weak domestic growth data. The yen rose 0.2% to 159.055 per dollar, marking a second day of gains. However, it stayed within the range seen over the past week.
Japan’s economy grew at an annualised 1.1% in the April to June quarter. That was below the 2.0% forecast. Quarter-on-quarter growth came in at 0.3%, also under the 0.5% estimate.
Yen Fed Rate Bets Drive Move
Markets focused more on the US rate outlook than on Japan’s GDP report. Fed funds futures showed a 66.9% chance that the Federal Reserve will keep rates unchanged at its next meeting. As a result, traders pushed back rate hike bets, which helped narrow the yield gap between the United States and Japan.
The move left the yen near 159.00 lows against the dollar. Meanwhile, the gain remained modest and did not signal a break from its recent trading band. The source said the currency drew more support from fading US tightening bets than from changes in Japan’s economy.
Japan GDP Details Show Mixed Picture
The GDP report showed weak business and consumer demand. Capital expenditure fell 1.2% from the prior quarter, against expectations for a 0.4% rise. Private consumption was flat, missing forecasts for a 0.5% increase, as high prices continued to weigh on household spending.
However, external demand offered support. It added 0.5 percentage points to GDP, above the 0.3 expected. The source said analysts expect that trend to continue because the yen remains historically weak and still supports exporters.
Despite the headline miss, the report is unlikely to change expectations for a Bank of Japan rate hike in September. The GDP deflator held at 2.6% year on year in the second quarter, above the central bank’s 2% target. Analysts at Capital Economics described the data as mixed and said higher government consumption may show that Prime Minister Takaichi’s expansionary fiscal policies are starting to have an effect.
You can access our other news on Forex markets and global market developments here.
Source: InvestingLive
