Key points:

• Japan’s GDP shrinks quarterly
• Economy grows year on year
• Yen up for fourth day in a row

GDP growth just wasn’t there for Japan in the first quarter but on a year-on-year basis, the economy expanded 1.7%, helping strengthen the yen.

💫 Japan’s Economy Contracts, but Also Expands

• The Japanese yen gained ground against the US dollar on Friday, for the fourth day in a row, after data showed Japan’s economy shrank in the first quarter for the first time in a year. The USDJPY pair dipped to a session low of ¥144.91 as investors digested a mixed GDP report from Asia’s export powerhouse.
• Preliminary data showed Japan’s GDP fell 0.2% in the first quarter of 2025, worse than the 0.1% decline forecasted by economists. Despite the quarterly stumble, annual economic growth surprised to the upside, expanding 1.7% year on year — the strongest pace since the first quarter of 2023.

🤫 Domestic Demand Is There

• Donald Trump’s tariff war likely dented Japan’s export-heavy economy, which continues to be under pressure from external shocks, especially as no clear progress has been made in the US-Japan trade talks.
• Domestically, however, things weren’t too bad. Domestic demand came in hot, rising 0.6% in the quarter. This internal strength helped limit the fallout from global trade tensions as traders remain antsy over any new deals announced by the White House.

💡 Yen Finds Support

• This said, forex bros ramped up their long bets on the Japanese yen, focusing on the resilience of domestic spending and the annual growth clip. Demand for the yen pressured the dollar-yen pair under the 50-day moving average and now all three major ones, including the 100-day and the 200-day line, are above the current exchange rate.
• Meanwhile, the US dollar retreated across the currency board after retail sales came in lower than expected at 0.1% for April, against 0.3% anticipated.

Source: Tradingview