The USD/JPY pair has halted its four-day losing streak, trading around 142.90 during the Asian session on Monday. This recovery is partly due to Japan’s lower-than-expected Gross Domestic Product (GDP) data. However, strong economic growth, rising wages, and persistent inflation continue to support the view that the Bank of Japan (BoJ) may raise interest rates further, which could limit the downside for the Japanese Yen (JPY).
Japan’s annualized GDP growth for the second quarter expanded by 2.9%, slightly below the preliminary estimate of 3.1% and the market forecast of 3.2%. Despite this, it represents the strongest yearly growth since Q1 2023. On a quarter-on-quarter basis, GDP grew by 0.7% in Q2, missing the market forecast of 0.8% but marking the strongest quarterly growth since Q2 2023.
The US Dollar (USD) also received support from Friday’s economic data, which cast doubt on the likelihood of an aggressive interest rate cut by the Federal Reserve (Fed) at its September meeting. According to the CME FedWatch Tool, markets fully expect at least a 25 basis point (bps) rate cut by the Fed. However, the probability of a 50 bps rate cut has slightly decreased to 29.0%, down from 30.0% the previous week.
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 142,000 jobs in August, falling short of the forecasted 160,000 but improving from July’s downwardly revised figure of 89,000. The Unemployment Rate fell to 4.2%, as expected, down from 4.3% the previous month.
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