USD/JPY Price Forecast: Yen Weakens to 159.70 as GDP Miss Fuels 160.00 Rally

The Japanese Yen underperformed its major peers on Tuesday, with USD/JPY trading 0.16% higher near 159.70 in European hours. The currency came under pressure after a weaker-than-expected GDP report raised doubts about the Bank of Japan’s ability to sustain a hawkish policy stance. Investors are now positioning ahead of Wednesday’s FOMC minutes, which could shape near-term direction for both currencies.

Japan’s GDP Miss Undercuts BoJ Case

Japan’s Cabinet Office reported Monday that the economy grew 0.3% quarter-on-quarter in the second quarter, below the prior reading of 0.5% and short of consensus estimates. On an annualized basis, growth slowed to 1.1% from 1.8% previously. Economists at Societe Generale said headline growth missed consensus because consumption and capital expenditure, the two components expected to drive the expansion, both disappointed. They noted the GDP deflator’s rise offers some support for near-term BoJ hike expectations, but warned that continued weakness in consumption and capex would raise concerns about a faster and higher rate path.

• Q2 GDP grew 0.3% QoQ, down from 0.5% previously
• Annualized growth slowed to 1.1% from 1.8%
• Services-sector weakness remains a key risk marker for BoJ policy, per Societe Generale

Dollar Firms Ahead of FOMC Minutes

The US Dollar traded marginally higher as investors awaited Wednesday’s release of the Federal Open Market Committee’s July meeting minutes. At that meeting, the Fed held its policy rate steady in the 3.50%-3.75% range, in line with expectations, and gave no forward guidance on future moves. Traders will scan the minutes for signals on how officials view the balance between persistent inflation risk and slowing momentum in parts of the US economy.

USD/JPY Tests Key Fibonacci Levels

USD/JPY trades at 159.70, holding a bearish near-term bias below the 20-day exponential moving average at 159.89 and the 61.8% Fibonacci retracement at 160.67. The pair sits just above the 50% retracement at 159.64, pointing to fragile consolidation after its recent pullback. The Relative Strength Index at 46.60 reflects neutral momentum, favoring neither a rebound nor further selling.

A sustained break above the 20-day EMA and the 61.8% retracement at 160.67 would ease downside pressure and open a path toward the 78.6% retracement at 162.14, with the cycle high near 164.01 as the next target. On the downside, support sits at the 50% retracement of 159.64, followed by the 38.2% level at 158.61 and the 23.6% level at 157.33, where buyers would likely defend the broader uptrend.

Conclusion

USD/JPY’s advance toward 160.00 depends on two competing forces: a Yen weakened by soft Japanese growth data and a Dollar waiting on fresh signals from the Fed. Wednesday’s FOMC minutes stand as the next major catalyst. A hawkish tone would likely extend the rally toward 162.14, while dovish signals could push the pair back toward support near 158.61.