On Monday (August 17), the USD/JPY pair retreated towards 159, erasing some of last week's significant gains. Despite weaker-than-expected Japanese GDP data, the yen strengthened, while market downward revisions of Federal Reserve rate hike expectations put pressure on the dollar. Data released last Friday showed that US retail sales declined by 0.6% month-on-month. Prior to this, both US July CPI and PPI inflation data showed a cooling trend. As a result, the market has continued to lower its expectations for a short-term interest rate hike by the Federal Reserve. Currently, the market expects a 67% probability that the Fed will maintain its current interest rate at its September meeting, compared to only 45% two weeks ago. This change in expectations has suppressed the dollar's performance across the board. Looking ahead, the market's focus this week will be on the release of the FOMC meeting minutes on Wednesday, which may further reveal policy disagreements within the Fed. These minutes correspond to the July policy meeting, when the Fed kept interest rates unchanged, but three policymakers voted against a rate hike. After the meeting and press conference, Fed Chairman Walsh reiterated the Fed's goal of bringing inflation back to 2%, but did not provide many details on how the central bank will achieve this goal, leaving some uncertainty about the policy outlook. Japanese GDP data fell short of expectations, but the yen remained supported. Japan's second-quarter GDP grew by only 0.3% quarter-on-quarter, with the annualized growth rate falling to 1.1%, lower than the market expectation of 2% and also lower than the 2.1% growth rate in the first quarter. Weak domestic demand offset strong export performance. This is the first quarter fully affected by the Iranian conflict, which has pushed up energy costs for businesses and residents. Despite weak GDP figures, market expectations for a Bank of Japan (BOJ) rate hike have not subsided; however, the data has complicated the policy outlook. A rate hike as early as September remains a possibility. However, if household consumption continues to be under pressure, the BOJ's pace of rate hikes may be more gradual. Technical Analysis The USD/JPY rebound from the low of 155.20 encountered resistance near 158.50. This level coincides with a multi-month uptrend line and the 50% Fibonacci retracement of the decline from 164 to 155.20. The Relative Strength Index (RSI) is below 50, suggesting further downside potential. A decisive break below 158.50 (38.2% Fibonacci retracement) is needed to target the 200-period exponential moving average around 158. A breach of this level would target 157.25 (23.6% Fibonacci retracement). A break below 157.25 could unleash further selling pressure, potentially pushing towards the 155.20 low. On the bullish side, a break above 160 is needed, as this level, combined with the 50-period exponential moving average and the 61.8% Fibonacci retracement, forms strong resistance. If the exchange rate holds above 160, the technical outlook will turn bullish, with upside targets at 162 and 163, and a further challenge of the 2026 high of 164.