The Japanese yen appreciated past 144.5 per US dollar on Monday, rebounding after two consecutive days of losses, as revised data showed Japan’s economy stagnated in the first quarter of 2025—flat from the previous quarter and a notable upgrade from the earlier estimate of a 0.2% contraction.
Yen strengthens following upward GDP revision
While the revision eased recession fears, it still highlighted a sharp slowdown from the 0.6% expansion seen in Q4 2024, underscoring fragile domestic demand amid persistent cost pressures and sluggish business investment.
Meanwhile, Japan’s current account surplus narrowed to ¥1.34 trillion in April, missing market expectations and marking a decline from March’s ¥3.4 trillion figure. The shortfall was primarily driven by a weaker trade balance and rising payments abroad, reflecting both softer global demand and continued volatility in energy imports. The mixed economic signals paint a complex picture for policymakers, balancing the need for continued support with emerging signs of underlying resilience.
On the monetary policy front, Bank of Japan Governor Kazuo Ueda reiterated last week that the central bank remains prepared to raise interest rates if inflation and growth stay on track with forecasts, reinforcing expectations of a slow but steady normalization of Japan’s ultra-loose policy stance. Markets are increasingly pricing in a possible rate hike later this year, particularly if wage growth and price pressures continue to show signs of persistence. Japan’s headline inflation remains above the BOJ’s 2% target, supported by tight labor conditions and recent corporate price-setting behavior.
Support from a caution environment
Externally, the yen also found support from growing caution in global markets ahead of high-stakes trade talks between the United States and China, scheduled to take place in London later Monday. Investors are closely watching for any signs of de-escalation, especially as recent US tariff hikes on steel and aluminum have stoked fears of retaliatory measures and broader trade fragmentation. Any breakthrough or deterioration in negotiations could have implications for global risk sentiment and safe-haven flows, which tend to benefit the yen.
Looking ahead, the yen’s trajectory will be influenced by the BOJ’s forward guidance, the pace of US monetary tightening, and developments on the trade front. Market participants will also be monitoring upcoming inflation and wage data out of Japan for additional clues on the timing and scale of potential policy adjustments.
