Yen Holds Near Two-Week Low as Hawkish BoJ Bets Meet Weaker GDP

The Japanese Yen has held steady near its two-week low against the US Dollar despite growing expectations of a Bank of Japan interest rate hike in September. The USD/JPY pair is currently trading at around 159.50.

Analysts at MUFG believe that market expectations for further BoJ tightening remain robust, with an 80% probability of a 25bp hike in the next meeting in September. This firm rate-hike pricing is expected to limit renewed Yen selling in the near term despite Japan's weaker-than-expected GDP.

The Q2 Gross Domestic Product (GDP) data has come in softer than expected, with real GDP rising 0.3% q/q compared to a consensus of 0.5%. The growth was largely reliant on external and public sector support, driven by net exports, government consumption, and private inventories.

The USD/JPY pair is expected to trade sideways ahead of the Federal Open Market Committee (FOMC) minutes release on Wednesday, which will provide fresh cues regarding inflation and the economic outlook.