USD/JPY slips as traders trim Fed hike bets, yen shrugs off weak GDP

The yen edged higher against the dollar, pushing USD/JPY modestly lower, even after a clear miss in Japanese GDP data underscored soft domestic momentum. The move highlights that yen direction is currently dictated by US rate expectations rather than Japanese fundamentals. Fed funds futures now imply roughly a two-thirds probability that the Federal Reserve holds rates at next month's meeting, a repricing that has trimmed the US-Japan yield differential and lent the yen support. Notably, the GDP disappointment failed to generate meaningful yen selling, suggesting the market has largely discounted weak Japanese growth data and is focused instead on the Bank of Japan's policy trajectory and the Fed's next step. Gains remain modest and contained within the recent trading range, with no evidence of a decisive downside break in USD/JPY. Traders should treat this as consolidation rather than trend reversal until the pair clears the lower boundary of its range. Upcoming US data and Fed commentary remain the primary catalysts, while yen crosses such as EUR/JPY and AUD/JPY should track the same yield-differential dynamic.