The Japanese Yen (JPY) extended gains on Friday, supported by stronger-than-expected domestic GDP figures and broad US Dollar (USD) weakness. Data from Japan’s Cabinet Office showed the economy grew 0.3% in Q2 2025, translating to a 1.0% annualized expansion. This beat market expectations of 0.4% and followed a 0.2% contraction in Q1, reinforcing expectations that the Bank of Japan (BoJ) will maintain its policy normalization path.
Japan’s Economy Minister Ryosei Akazawa noted that the economy is recovering modestly but warned of potential risks from US trade policies and rising prices impacting consumption. The BoJ’s upward inflation forecast keeps the door open for a possible rate hike by year-end, adding support to the Yen.
USD/JPY retreated from the 148.00 level as fresh USD selling emerged despite a recent rebound driven by hotter-than-expected US Producer Price Index (PPI) data. Headline PPI rose 3.3% year-on-year in July, well above the 2.5% forecast, overshadowing the cooler CPI print earlier in the week. While this tempered expectations for aggressive Fed rate cuts, markets still price in a 90% probability of a 25-basis-point cut in September and at least two cuts by year-end.
Geopolitical developments could further influence the Yen, with US President Donald Trump and Russian President Vladimir Putin meeting in Alaska on Friday to discuss the Ukraine conflict. Traders will also watch US Retail Sales, the Empire State Manufacturing Index, University of Michigan sentiment data, and comments from Federal Reserve officials for near-term direction.
