The yen rebounds after strong growth data in Japan

The market awaits important economic data in the United States

The Japanese yen rebounded in the Asian market on Thursday against a basket of major and minor currencies, recovering from a two-week low against the US dollِar, after better-than-expected data on Japan’s economic growth in the second quarter of this year.

The data added to speculation that Japan Bank will raise Japanese interest rates a third time before the end of this year, which is expected to reduce interest rates between Japan and the United States.

Inflation data released this week in the United States, strongly strengthened the odds that the Federal Reserve will cut US interest rates by about 50 basis points next September, and in order to reassess those possibilities, investors are awaiting later today, the release of important data on the US economy.

Price overview

The exchange rate of the Japanese yen today: The dollar fell against the yen by about 0.15% to (147.14 ¥), from the opening price of today’s trading at (147.33 ¥), and recorded the highest level at (147.55 ¥).
The Japanese yen ended Wednesday down 0.35% against the US dollar, after rising 0.25% the previous day as part of the recovery from a two-week low of 148.22 yen.
Japan’s GDP grew at 0.8 percent in the second quarter of this year, beating market expectations for 0.6 percent growth, and Japan’s economy slumped at 0.5 percent, the National Bureau of Statistics said on Thursday.
The positive growth is due to a strong rebound in consumption, which means further pressure on Japan Bank’s monetary policymakers to raise Japanese interest rates for the third time this year.
Strong growth data boosted the odds of Japan Bank raising interest rates for a third time this year, which is expected to renew pressure on the breakup of Curry Trade deals.

American interest

Producer and consumer price data released this week in the United States showed that further inflationary pressures on Federal Reserve monetary policymakers have eased.
Following this data, according to CME Group’s FeedWatch: US interest rate cut prospect pricing increased by 50 basis points at the September meeting from 49% to 65%, and cut pricing fell by 25 basis points from 51% to 35%.
Investors have sold the yen relentlessly for several months, due to lower interest rates in Japan than anywhere else especially the United States, which has led to the accumulation of bearish positions in the Japanese currency that some have been forced to dismantle.
The interest rate gap between the US and Japan has created a highly lucrative trading opportunity, with traders borrowing yen at low rates to invest in dollar-priced assets for a higher return, known as the ‘Curry Trade’ trade.
Following decisions by the Bank of Japan and the Federal Reserve in late July, the interest rate gap between Japan and the United States narrowed to 525 basis points in favor of US interest rates as the smallest gap since July 2023.
In light of the current possibilities, the gap is expected to narrow to 475 basis points in September, with Japanese interest rates fixed unchanged at the September 20 meeting.

Forecast for the performance of the Japanese yen

In a recent note, BMI said that Japan Bank will take longer to raise interest rates given the recent volatility in global markets and the rapid appreciation of the yen.
The institution added that the Japan Bank will adopt a more cautious approach in raising interest rates to avoid a quick appreciation of the yen.
Japan Bank is expected to raise interest rates by just 25 basis points this year, to 0.50%, which is lower than the previous forecast of 50 basis points.

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