The Japanese Yen (JPY) weakened against the US Dollar (USD) on Tuesday, with the USD/JPY pair trading near the 160.30 price zone, as investors digested stronger Japanese growth figures while remaining cautious ahead of key US inflation data [1]. Japan's final Q1 Gross Domestic Product (GDP) expanded by 0.5% quarter-on-quarter, surpassing expectations of 0.3% and matching the previous estimate. Annualized GDP growth also surprised to the upside at 1.8%, above the 1.3% consensus forecast, indicating stronger economic momentum than anticipated [1]. Despite these robust figures, the Yen found limited support, as the GDP Deflator held at 3.2%, below expectations of 3.4%, suggesting moderating underlying price pressure [1].
Market participants continue to question how aggressively the Bank of Japan (BoJ) can tighten policy amid uneven domestic demand and lingering global growth concerns [1]. Technical analysis shows USD/JPY maintaining a bullish near-term tone, trading above key moving averages, with resistance at 160.31 and support levels at 160.22, 160.15, and deeper at 159.47 [1].
Meanwhile, broader market sentiment is influenced by anticipation of US inflation data, with the US Bureau of Labor Statistics expected to release the May Consumer Price Index (CPI) on Wednesday. The CPI is forecast to jump to 4.2% year-on-year, exceeding the prior month's 3.8% print, while core CPI inflation is projected to rise from 2.8% to 2.9% year-on-year [2]. Inflation remains around twice the Federal Reserve’s 2% target, leading money markets to price in 23 basis points of rate increases by the US central bank towards the end of the year [2].
The cautious stance ahead of US inflation data and questions about BoJ policy tightening have limited the Yen's gains, despite strong domestic growth figures [1].
CONCLUSION
Despite Japan's stronger-than-expected GDP growth, the Japanese Yen weakened as investors remain cautious ahead of key US inflation data and question the Bank of Japan's policy outlook. Market sentiment is moderately negative for the Yen, with technicals favoring further USD/JPY upside. The upcoming US CPI release is expected to be a significant driver for currency markets in the near term.