USD/JPY back above 155.00 amidst broad-market Yen weakness

■USD/JPY pares away recent declines but still down from recent peaks.

■Japanese GDP contracts more than expected, battering Yen.

■Fedspeak weighs on risk sentiment, but rate cut hopes remain.

USD/JPY recovered ground on Thursday, climbing back over the 155.00 handle after dipping to 153.60 on Wednesday. Japanese growth figures contracted more than expected, and Federal Reserve (Fed) rate cut hopes are struggling beneath the weight of cautionary talking points from Fed officials.

Japan’s Gross Domestic Product (GDP) contracted more than expected in the first quarter, declining -0.5% QoQ compared to the previous quarter’s flat 0.0% print, revised down slightly from the initial print of 0.1%. Markets were expecting a -0.4% contraction. Annualized Japanese GDP growth also contracted, decline -2.0% for the year ended Q1, worse than the expected -1.5% and down from the previous 0.0% (also revised down from 0.4%).

Fed officials have begrudgingly begun to hint at the possibility of late-year rate cuts in 2024, but remain overly cautious regarding the US’ inflation outlook and still-tight labor market. Inflationary pressures continue to ease, helping to bolster broad-market hopes for a Fed rate cut, but price growth still remains well above the Fed’s 2% target, and Fed policymakers are leery after disinflation progress slowed in the first quarter.

Despite risk appetite cooling slightly during the Thursday US market session, rate traders still expect the Fed to meet rate cut expectations. According to the CME’s FedWatch Tool, rate markets are pricing in 70% odds of a September rate trim of at least a quarter of a percent.

USD/JPY technical outlook

USD/JPY’s technical recovery on Thursday dragged the pair back over the 155.00 handle, but technical resistance sits nearby at the 200-hour Exponential Moving Average (EMA) at 155.44. The pair remains down from the last swing high above 156.50, but USD/JPY has recovered from the near-term low near 152.00.

USD/JPY is still trading deeply into bull country, bolstered above the 50-day EMA at 153.36 and trading well above the 200-day EMA at 148.48. Despite a suspected “Yentervention” from the Bank of Japan (BoJ) recently, the pair is still up over 10% in 2024.

USD/JPY hourly chart

USD/JPY daily chart