The Japanese yen strengthened to around 147 per dollar on Tuesday, reaching its highest level in five months as growing US recession fears fueled demand for safe-haven assets.
Japanese yen hits fresh five-month high
The yen's appreciation was driven by concerns over the health of the US economy, as President Donald Trump recently declined to rule out the possibility of a recession, citing uncertainties surrounding his trade policies and the ongoing government shake-ups. These remarks added to a broader sense of unease in global markets, prompting investors to seek refuge in safe-haven currencies like the yen.
In Japan, sentiment was further dampened by revised fourth-quarter GDP data, which showed annualized growth slowing to 2.2% from an earlier estimate of 2.8%. The revision highlighted weaker-than-expected private consumption, signaling that domestic demand remains sluggish despite efforts to stimulate economic growth. This slower-than-expected growth raised concerns about Japan's recovery trajectory, particularly as the country grapples with an aging population and structural challenges in its labor market.
BoJ set to hold interests unchanged
Despite these economic concerns, the Bank of Japan (BOJ) is widely expected to hold interest rates steady at its upcoming March policy meeting. However, analysts anticipate that the BOJ may begin to implement gradual interest rate hikes later this year as part of its broader effort to normalize monetary policy. The BOJ's ultra-loose monetary stance, including negative interest rates and asset purchases, has been in place for years to combat deflation, but with inflation showing signs of picking up, the central bank faces mounting pressure to adjust its policy.
Finance Minister cautioned markets
Meanwhile, the yen’s sharp gains have prompted Japanese Finance Minister Shunichi Kato to issue a cautionary statement, warning that excessive foreign exchange volatility can have real-world impacts on people’s lives, particularly in the export-driven economy. A stronger yen, while beneficial for Japanese consumers importing goods, can hurt exporters by making their products more expensive abroad. The government has been closely monitoring currency movements and may intervene if the yen strengthens too rapidly, which could undermine Japan's export competitiveness. As global economic uncertainties persist, the yen's movements will continue to be a focal point for both investors and policymakers alike.
