USD/JPY Drops on Strong Japan GDP; BoJ Rate Hike Expectations Rise

USD/JPY has declined sharply following Japan's better-than-expected GDP data, which has intensified speculation about a potential Bank of Japan rate hike. Japanese GDP growth exceeded forecasts, signaling economic resilience that could provide the BoJ with justification to further normalize monetary policy. The strong economic performance has shifted market dynamics, with traders now pricing in higher probability of BoJ tightening in upcoming meetings. This represents a significant shift from the ultra-loose policy stance that has characterized Japanese monetary policy for years. The yen's strength has been amplified by its safe-haven appeal amid global market uncertainties. Technical analysis shows USD/JPY breaking below key support levels, with momentum indicators pointing to further downside potential. The combination of diverging central bank policies—with the Fed potentially cutting while the BoJ tightens—creates a compelling bearish case for USD/JPY. Traders should monitor upcoming BoJ communications and Japanese economic data for confirmation of this policy shift.