Yen Gains as Traders Push Back Fed Rate Hike Bets Despite Weak GDP

What happened

The yen strengthened 0.2% to 159.055 against the dollar for a second consecutive day, shrugging off Japan's Q2 GDP miss which grew 1.1% annually (vs 2.0% expected). Fed funds futures now imply a 66.9% chance the Fed holds rates next month.

Why it matters

Currency direction is driven by shifting Fed expectations rather than domestic data. The soft GDP is unlikely to alter the BOJ's tightening path given inflation remains above target, keeping the policy divergence between a cautious Fed and a hawkish BOJ as the dominant driver.