Is the yen deflating? The dollar-yen pair is gradually recovering from a collapse that happened last week. At the start of Tuesday, the major pair received a new breath from the economic data of Japan. Recall that last week the USD/JPY pair experienced the most dramatic fall in 14 years. According to the results of five sessions, it sank by almost 6% and fell below 139. The ground from under the dollar's feet was knocked out by data on inflation in the United States. The statistics for October turned out to be much softer than the forecast, which increased traders' fears about a possible slowdown in the pace of tightening in America. The greenback was able to return to life only after the weekend. It was revived a bit by a hawkish commentary by Christopher Waller. On Sunday, a member of the Federal Reserve's Board of Governors said it's unreasonable to judge the weakening of inflation by just one month. The central bank will need to get some more hard evidence before moving to a less aggressive policy. Hints of further sharp rate hikes in the US helped USD/JPY recover slightly. Yesterday, the quote rose by more than 0.5% and crossed the threshold of 140. This morning, the pair has confidently settled above this level, having received support from Japan's macro statistics. Shocking data on GDP for the third quarter came out at the beginning of the day, which not only fell short of the forecast, but also turned out to be much worse than preliminary estimates. The report showed that on a quarterly basis, the Japanese economy fell by 0.3% against expectations of growth of 0.3%. And in annual terms, the indicator fell by 1.2%, while an increase of 1.1% was predicted. According to analysts at Bloomberg, the unexpected contraction in Japan's GDP reflects the impact of a weaker yen on the economy. This year, the JPY has fallen by more than 20% against the dollar due to the strong divergence in the monetary policy of the Bank of Japan and the Fed. Unlike its American counterpart, which actively fights inflation by raising rates, the Japanese central bank adheres to an ultra-soft rate and maintains ultra-low rates. The weakness of the currency led to an increase in the country's spending on imports, which significantly undermined the growth of Japan's economy, which was already very fragile. Japan has yet to recover from the COVID-19 pandemic. It is for this reason that the BOJ continues to go the dovish route and pump liquidity into the economy. Recall that last month, Japanese Prime Minister Fumio Kishida developed another stimulus package, and his cabinet approved an additional budget of $207 billion to fund these measures. As you can see, the circle is closed: the soft monetary rate necessary for GDP growth weakens the yen, and this further slows down the economy. Japan has found itself in a trap into which it has driven itself, and is unlikely to find a way out in the near future. Now, as fears of a global recession are rising amid a massive increase in rates, it is becoming increasingly clear that the recovery of the Japanese economy is once again being postponed. And given the latest data on GDP, many analysts have no doubt that the BOJ can further strengthen the dovish rhetoric at its next meeting. This will be another blow to the yen. Experts predict that the JPY's downtrend will continue despite speculation about a possible slowdown in US rate hikes, especially since the market has already taken this risk into account. Most investors are well aware that the US central bank has not yet finished its fight against rising prices. To return inflation to its target, it will have to raise rates a few more times. But even if the central bank does it less abruptly than before, the dollar-yen pair should still get at least the slightest benefit from each round of rate hikes.