Yen edges higher as traders push back Fed rate hike bets, shrug off soft GDP

The yen edged higher against the dollar, rising 0.2% to 159.055, as traders scaled back expectations for another Federal Reserve rate hike and focused more on US policy than weak Japanese GDP data. Japan’s Q2 GDP expanded only 1.1% annualized versus 2.0% expected, with capex and consumption both softer than forecast, but the report did little to change the view that the Bank of Japan remains on track for further tightening because inflation is still above target. The key market driver is the narrowing US-Japan yield differential: fed funds futures now price a 66.9% chance the Fed holds rates next meeting. The move remains modest and range-bound, but it reinforces the yen’s sensitivity to shifts in Fed pricing and broader policy divergence.