- The Japanese Yen weakens after growth contracted 0.5% in the first quarter.
- The data further reduces the chances that the Bank of Japan will decide to raise relatively low interest rates.
- The data stops the fall of the Dollar against the yen after the more moderate than expected inflation data in the US.
USD/JPY is trading at 154.75 on Thursday, up a few tenths of a percent on the day after weaker-than-expected Japanese growth data weighed on the Japanese Yen (JPY).
Japan's Gross Domestic Product (GDP) contracted 0.5% in the first quarter on a quarterly basis, when experts expected a 0.4% drop after a 0.0% change in the previous quarter, according to data from the Japanese Cabinet Office.
The drop in economic growth, along with a drop in real wages in March and more moderate inflation in the capital Tokyo, will likely delay the time when the Bank of Japan (BoJ) decides to raise interest rates. While some commentators expect another rate hike in November, others say it will now not be until February 2025 before the BoJ raises interest rates again.
A delay in raising interest rates is negative for the JPY (positive for USD/JPY) as it maintains the wide interest rate differential between the US and Japan, which favors the US dollar (USD) about the Yen.
The Federal Reserve has set its federal funds rate at 5.5% while the BoJ has set its equivalent policy rate at 0.1%, indicating a gap of approximately 540 basis points between the two. This disproportionately benefits the USD as investors are more likely to place their capital in dollars where it can earn higher interest.
The recovery in the USD/JPY comes after its sharp decline on Wednesday following the release of softer-than-expected US Consumer Price Index (CPI) data. This data showed that prices only rose 0.3% in April, which was below the 0.4% forecast and 0.4% previously.
Furthermore, in annual terms both the general and underlying CPI decreased. The data revived bets on Federal Reserve (Fed) rate cuts in September, from about 65% before the data to 75% after, according to CME's FedWatch tool.
US Retail Sales, released at the same time as the CPI data, also weighed on the USD/JPY, after showing zero sales growth in April, which was well below the 0.4% expected and the downward revision of 0.6% in March, according to data from the US Census Bureau
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
