Yen Eases After Japan’s Weak Growth Figures; Dollar Steady Amid Rate Cut Speculation
By Samuel Indyk and Ankur Banerjee | February 16, 2026
The Japanese yen slipped on Monday, retreating from its strongest performance in 15 months following the release of soft economic growth data for Japan. Meanwhile, the U.S. dollar remained steady as traders digested recent inflation figures that have fueled speculation around possible Federal Reserve interest rate cuts later in the year.
Yen Retreats After Election Boost and Weak GDP Data
The yen eased by 0.4% to 153.28 per U.S. dollar on Monday, retracing part of its nearly 3% surge last week—the largest weekly gain in about 15 months. The previous rally was sparked by the landslide election victory of Prime Minister Sanae Takaichi’s Liberal Democratic Party, which had initially strengthened investor confidence in the currency.
However, Monday’s economic data revealed Japan’s economy expanded at a modest annualized rate of just 0.2% in the last quarter, highlighting persistent challenges that the new government faces to stimulate growth.
Mohamad Al-Saraf, FX and fixed income associate at Danske Bank, commented, “After the election, the political dust may be settling a bit, for the near term at least, and we are seeing the yen increasingly becoming sensitive to data.”
BOJ and Government Discuss Economic Outlook
Adding to market focus, Bank of Japan (BOJ) Governor Kazuo Ueda met with Prime Minister Takaichi on Monday in their first bilateral talks since the election. The two discussed general economic and financial developments, but Ueda indicated that no specific monetary policy requests were made by the prime minister.
The BOJ is scheduled to review its policy rates in March. Currently, traders assign about a 20% probability of a rate hike at that meeting; however, a Reuters poll of economists from last month expects the central bank to delay tightening until July.
The BOJ raised its key interest rate to 0.75% in December—the highest in 30 years—but it remains significantly lower than rates in other major economies. This has contributed to the yen’s underperformance in recent years, prompting periodic currency interventions by Japanese authorities to support the yen.
Goldman Sachs strategists have noted that if the BOJ chooses to leverage recent yen strength to pursue a gradual tightening path, it could lead to renewed yen weakness and increased volatility in long-term Japanese government bonds. Goldman projects a 12-month yen exchange rate around 152 per U.S. dollar.
Dollar Steady as Inflation Data Bolsters Rate Cut Bets
In the United States, consumer price data released last Friday showed inflation rising less than expected in January, increasing the likelihood that the Federal Reserve may consider cutting interest rates later this year.
Kyle Rodda, senior financial analyst at Capital.com, noted, “The markets are flirting with pricing in a third cut.” Futures markets currently imply about 62 basis points of rate easing over the remainder of 2026, with an 80% chance assigned to a rate cut in June.
The U.S. dollar index, which measures the currency against six major peers, remained steady at 96.958 on Monday after slipping 0.8% last week. Following the inflation data, significant activity was seen in the bond market: the yield on two-year U.S. Treasury notes fell to its lowest since 2022, while the 10-year yield declined by 4.8 basis points.
Other Currency Movements
The euro dipped slightly by less than 0.1% to $1.1863, while the British pound eased a bit to $1.3652. The Swiss franc softened marginally to 0.7688 per U.S. dollar after gaining more than 1% last week, amid concerns investors are wary of possible intervention from the Swiss National Bank to curb excessive franc strength.
Strategists at OCBC highlighted that “Further Swiss franc gains raise the risk of additional downside surprises relative to the SNB’s inflation forecasts,” which could challenge the central bank’s tolerance for currency appreciation despite a high bar for returning to negative interest rates.
Elsewhere, the Australian dollar strengthened 0.4% to $0.7096, just below a three-year high reached last week. The New Zealand dollar also gained 0.1% to $0.6045, ahead of the Reserve Bank of New Zealand’s policy meeting on Wednesday, where rates are widely expected to remain unchanged.
Market Conditions
Market liquidity was expected to be thin on Monday due to public holidays in the U.S., China, Taiwan, and South Korea, factors that often contribute to subdued trading volumes and increased volatility.
Reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Kevin Buckland and Anil D’Silva