The Japanese yen strengthened past 144 per dollar on Monday, marking its fifth consecutive session of gains, as the US dollar continued to retreat following Moody’s credit rating downgrade of the U.S..
Japanese yen strengthens on dollar weakness
On Friday, the agency lowered the U.S. sovereign credit rating from Aaa to Aa1, citing an increasingly unsustainable fiscal trajectory and what it described as “a lack of effective policy action” to rein in mounting deficits and stabilize debt dynamics. The downgrade fueled concerns over long-term fiscal discipline in the U.S., prompting a broader risk reassessment in currency markets and providing support to safe-haven assets like the yen.
Domestically, Japan's economic outlook remained fragile after government data showed the country’s GDP contracted by more than expected in the first quarter of 2025, shrinking for the first time in a year. The decline was driven by weakening exports, sluggish consumer spending, and persistent uncertainty around global trade. The contraction has reinforced expectations that the Bank of Japan will keep monetary policy highly accommodative in the near term, although the yen’s recent strength suggests that foreign exchange markets are increasingly focused on external risk factors.
Eyes on Japanese data
Attention now turns to upcoming Japanese trade figures, which will offer further clues about the health of the export-driven economy amid rising global protectionism. Analysts warn that the anticipated imposition of new U.S. tariffs, particularly on auto-related products, could further weigh on Japan’s already vulnerable external sector.
In a key political development, Prime Minister Shigeru Ishiba reiterated during a press briefing over the weekend that Tokyo would not accept any preliminary trade agreement with Washington that excludes a clear roadmap for reducing the current 25% U.S. tariff on Japanese automobiles. Ishiba emphasized that fair market access for Japanese carmakers remains “non-negotiable” and called on the U.S. to show flexibility in ongoing trade talks. His comments highlight growing tensions in bilateral trade discussions, which have become a source of unease for both investors and Japanese industry leaders.
Meanwhile, markets are also watching for potential currency intervention, as the yen's strengthening could impact the competitiveness of Japanese exports if the trend accelerates. However, policymakers have so far avoided any direct indication of intervention, instead signaling their preference for stable and predictable exchange rate movements.
