Yen rises following weaker Japanese GDP data

The yen was 0.2% stronger against the U.S. dollar at 159.075 yen

The ​yen gained momentum against the dollar, largely shrugging off weaker-than-expected Japanese GDP data.

The yen was 0.2% stronger against the U.S. dollar at 159.075 yen, on track for a second consecutive day of modest gains but still firmly within its trading range of the past week, after data on ​Monday showed Japanese GDP for the second quarter expanded at an annualised 1.1%.

Japan’s 10-year government bond yield ​climbed to a three-decade high.

The details were a mixed bag, Capital Economics analysts wrote in a ⁠research note. GDP expanded at a decent pace in Q2 and with the government still limiting the pass-through from higher ​energy prices, they wrote, while a jump in government consumption suggests that Takaichi’s expansionary fiscal policies are starting to have an ​impact.

Elsewhere, the euro was up 0.1% at $1.1585, breaching a two-month high, while the British pound was 0.1% stronger at $1.3551, approaching its firmest levels since May. The Australian dollar was 0.3% higher at $0.7101, while its kiwi counterpart added 0.4% to $0.5911, both at their strongest levels since June.

Soggy ​U.S. data, including non-farm payrolls and gauges of price inflation for consumers and producers, have doused investor expectations of rate hikes from ​the central bank this year.

Softer ⁠U.S. data over recent weeks has reduced rate hike expectations, with less than one full hike now priced for December, BNY analysts wrote. The back end of the Treasury curve remains elevated, with some commentators attributing higher yields to credibility concerns.

Fed funds futures are pricing an implied 69.9% probability that central bank policymakers will hold interest rates at their next two-day ​meeting ending on September 16, ​up from a 47.6% ⁠chance a month ago, according to the CME Group’s FedWatch tool.