Ella 
In early Asian trading on Thursday, USD/JPY narrowed its losses and was around 154.45. Weak U.S. inflation has put some selling pressure on the U.S. dollar (USD). However, USD/JPY recovered slightly following the latest release of Japan’s first quarter 2024 gross domestic product (GDP) lower than expected.
Japan’s economy shrank in the first three months of 2024, Cabinet Office data showed on Thursday. Japan’s initial gross domestic product (GDP) contracted at a quarterly rate of -0.5% in the first quarter, while it expanded by 0.1% in the fourth quarter of 2023, weaker than the expected -0.4%. Gross domestic product contracted at an annual rate of -2.0%, compared with the previous forecast of -1.5% and the previous reading of 0.4%. The Japanese yen (JPY) attracted some sellers after Japan’s GDP came in below expectations.
On Thursday, the annual U.S. consumer price index (CPI) inflation rate fell to 3.4% in April from 3.5% in March, in line with market expectations. A report released by the U.S. Bureau of Labor Statistics (BLS) on Wednesday showed that the core consumer price index, which excludes volatile food and energy prices, fell to 3.6% in April from the previous value of 3.8%, in line with market consensus. In addition, U.S. retail sales in April were flat compared with March’s 3% increase and 0.4% lower than expected.
Weak inflation in the United States increases the possibility of the Federal Reserve cutting interest rates in 2024. Financial markets expect the Fed to wait for more evidence of improving inflation data. Federal Reserve Chairman Jerome Powell said on Tuesday that U.S. inflation may be more persistent than expected, which will allow the Fed to maintain higher interest rates longer to achieve the central bank’s 2% goal. The Chicago Mercantile Exchange’s FedWatch tool shows that investors have raised the prospect of a rate cut by the Federal Reserve in September 2024 to nearly 72% from 65% before the release of the U.S. Consumer Price Index.
