Dollar Weakens, Yen Regains Momentum!
The Japanese yen strengthened against the US dollar during Monday's trading (August 17), pushing the USD/JPY pair down for the second consecutive day to around 159.10. The yen's appreciation occurred despite second-quarter economic growth data for Japan coming in weaker than market expectations.
Japan's economy grew by 0.3% quarter-on-quarter in the second quarter of 2026, slowing from 0.5% in the previous quarter and falling short of the 0.5% growth forecast. On an annualized basis, Japan's GDP grew by 1.1%, also lower than the estimated 2.0% and the previous growth figure of 1.8%.
Weaker GDP data could complicate the Bank of Japan's efforts to proceed with monetary policy normalization. The BoJ had previously cited strong domestic demand as a reason to consider further interest rate hikes after gradually moving away from its ultra-loose policy.
However, the primary pressure on USD/JPY stemmed from the US dollar side. US retail sales for July fell by 0.6% month-on-month, reversing the 0.2% rise seen in June and coming in far weaker than the expected 0.1% increase. Year-on-year retail sales growth also slowed to 5.0% from 6.8%.
A series of softer US data points—ranging from CPI and PPI to retail sales—has led the market to further scale back expectations for a Federal Reserve rate hike. The probability of a Fed rate hike in September now stands at around 33%, down from approximately 44% the previous week.
Newsmaker Analysis: While Japan's weak GDP could limit the BoJ's room to raise interest rates, the current weakness of the US dollar is the more dominant factor for the USD/JPY pair. As long as expectations for a Fed rate hike continue to decline, the yen has the potential to maintain its gains. However, should the market begin to doubt the BoJ's normalization path, USD/JPY could see renewed upward momentum, with the 160 mark remaining a key psychological level to watch. (asd)*
Source: Newsmaker.id
