EUR/JPY falls to near 171.50 following Japan’s Q2 GDP data

• EUR/JPY loses ground as the Japanese Yen advances after the release of stronger Japanese Q2 Gross Domestic Product data.
• Japan’s Q2 Gross Domestic Product increased by 0.3% QoQ, up from 0.1% in Q1.
• The Euro could find support from the potential widening of the Fed-ECB interest rate differential.

EUR/JPY extends its losses for the third successive session, trading around 171.70 during the Asian hours on Friday. The currency cross loses ground as the Japanese Yen (JPY) rises following stronger-than-expected Japanese Gross Domestic Product (GDP) data for the second quarter.

The preliminary reading released by Japan’s Cabinet Office earlier this Friday showed that the economy expanded by 0.3% quarter-over-quarter in the second quarter, up from 0.1% in Q1, in line with consensus forecasts. Growth was primarily supported by net exports, which added 0.3% despite headwinds from US tariffs. Gross Domestic Product expanded by 1.0% year-over-year in the second quarter, compared to a contraction of 0.2% in the first quarter and consensus estimates for a 0.4% rise.

Japan's Economy Minister Ryosei Akazawa noted that the data indicated the economy is recovering modestly. Akazawa, however, highlighted that risks from US trade policies could weigh on growth, while rising prices could dampen consumer sentiment and hurt private consumption.

Traders expect that the European Central Bank (ECB) has ended its easing cycle in July after eight cuts over the past year, leaving borrowing costs at their lowest since November 2022. However, another rate cut by the ECB could be eyed in 2025.

The downside of the EUR/JPY cross could be limited as the Euro (EUR) could receive support against its peers from the potential for the interest rate differential between the US Federal Reserve (Fed) and the European Central Bank. The European Union (EU) economic docket will be absent as there are no scheduled events due to the Feast of Our Lady of Heaven.