• USD/JPY rises while US and Japanese markets remain closed for holidays.
• Weak Japanese Gross Domestic Product figures curb tightening expectations.
• Investors await speeches from Federal Reserve Vice Chair for Supervision.

USD/JPY trades around 153.60 on Monday at the time of writing, up 0.54% on the day, in a low-liquidity environment due to the closure of several Asian markets for the Lunar New Year and US markets for President’s Day. The relative stability of the US Dollar (USD), amid an extended weekend in the United States (US), supports the pair at the start of the week.

The US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, stands near 97.00, posting a modest gain. Investors remain cautious ahead of a busy macroeconomic week and are closely watching a speech from Federal Reserve (Fed) Vice Chair for Supervision Michelle Bowman, which could provide fresh clues on the policy outlook.

On the Japanese side, the release of preliminary fourth-quarter Gross Domestic Product (GDP) figures weighed on the Japanese Yen (JPY). The Japanese economy expanded by 0.1% QoQ, below the 0.4% expected by the consensus, while the annualized growth rate comes in at 0.2%, well under the 1.6% forecast. In the previous quarter, Japan recorded a contraction of 0.7%, with a 2.6% annualized decline.

These disappointing figures call into question the scenario of a rate hike as soon as March by the Bank of Japan (BoJ). Speculation was also fueled by a meeting between the Prime Minister and BoJ Governor Kazuo Ueda. The BoJ chief, however, clarified that discussions focused on general economic and financial developments and denied any explicit request regarding interest rates.

In theory, improving economic prospects tend to enhance the appeal of the domestic currency. In this case, the relative weakness of the latest data reduces the likelihood of near-term monetary tightening in Japan, limiting the Japanese Yen’s upside potential and mechanically supporting USD/JPY. The pair’s direction will now depend on signals from major central bank officials and the upcoming macroeconomic releases scheduled for the week.