Yen Rises Against Dollar Amid Shift in Rate Hike Expectations

The Japanese yen has strengthened against the US dollar for the second straight day, with traders reassessing expectations of a Federal Reserve rate hike. Despite weaker-than-expected Japanese GDP data showing an annualized expansion of 1.1% in Q2, the yen rose by 0.2%. The economic indicators were mixed, according to Capital Economics analysts.

Capital Economics noted that government consumption jumped, suggesting Takaichi's expansionary fiscal policies are starting to have an impact. However, other data points showed a slower pace of growth than expected, which might temper expectations for rate hikes from the Fed.

Fed funds futures now price in a 66.9% probability that policymakers will hold interest rates at their next two-day meeting ending on September 16, up from 47.6% a month ago, according to the CME Group's FedWatch tool.