USD/JPY rises to near 143.00 following lower-than-expected Japan GDP data

• USD/JPY breaks its four-day losing streak after weaker Gross Domestic Product data from Japan on Monday.
• Friday’s US labor data reduces the likelihood of an aggressive Fed rate cut in September.
• CME FedWatch Tool suggests the odds of a 50 basis points Fed rate cut have slightly decreased to 29.0%.

USD/JPY halts its four-day losing streak, trading around 142.90 during the Asian session on Monday. The USD/JPY pair's recovery can be partly attributed to lower-than-expected Gross Domestic Product (GDP) data from Japan. However, robust economic growth, rising wages, and persistent inflationary pressures continue to support expectations that the Bank of Japan (BoJ) may further raise interest rates, which could limit the downside for the Japanese Yen (JPY).

Japan's GDP Annualized expanded by 2.9% in the second quarter, slightly below the preliminary reading of 3.1% and the market estimate of 3.2%. However, this reading marks the strongest yearly expansion since Q1 2023. On a quarter-on-quarter basis, GDP grew by 0.7% in Q2, falling short of the market forecast of 0.8% but representing the strongest quarterly growth since Q2 2023.

Additionally, the US Dollar received support as Friday’s US economic data raised uncertainty over the likelihood of an aggressive interest rate cut by the Federal Reserve (Fed) at its September meeting. According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has slightly decreased to 29.0%, down from 30.0% a week ago.

The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) added 142,000 jobs in August, below the forecast of 160,000 but an improvement from July’s downwardly revised figure of 89,000. Meanwhile, the Unemployment Rate fell to 4.2%, as expected, down from 4.3% in the previous month.