The Japanese Yen (JPY) rebounded in the Asian session on Friday, halting its previous day’s sharp retracement from a three-week high against the US Dollar. The renewed bid came after fresh economic data showed Japan’s economy expanded more than expected in Q2 2025, defying US tariff pressures.
The Cabinet Office’s preliminary GDP reading revealed a quarterly growth of 0.3%, translating to a 1.0% annualized expansion, well above the 0.4% forecast. This marked a notable rebound from Q1’s 0.2% contraction, providing the Bank of Japan (BoJ) with additional confidence in its policy normalization path.
Economy Minister Ryosei Akazawa hailed the figures as proof of a modest recovery but warned that US trade policies and persistent inflation risks could still weigh on consumer spending. These remarks highlight the delicate balance the BoJ must maintain between tightening policy to curb inflation and supporting domestic demand.
BoJ–Fed Divergence in Focus
The latest GDP figures reinforce the BoJ’s hawkish economic projections, which forecast 0.6% growth for fiscal 2025. Coupled with upward revisions to inflation estimates, the probability of a rate hike before year-end remains firmly on the table.
This stands in stark contrast to the US Federal Reserve’s trajectory. Despite the US Producer Price Index (PPI) surging to 3.3% YoY in July from 2.4% previously, Fed officials are still expected to deliver a 25 basis point cut in September, with markets pricing in a 90% probability. Investors also anticipate at least two rate cuts before year-end.
Such policy divergence traditionally supports the Yen, as higher Japanese rates narrow the interest rate differential, making JPY more attractive to yield-seeking investors who previously favored the USD.
USD Momentum Falters After PPI Surge
Thursday’s hotter-than-expected PPI briefly revived the US Dollar, pushing USD/JPY almost 200 pips higher from recent lows. However, that momentum quickly faded as traders reassessed the likelihood of prolonged Fed tightening.
The USD Index (DXY) remains capped as markets weigh the softer July CPI report, released earlier in the week, against the stronger PPI data. The mixed inflation picture keeps Fed policy uncertainty elevated and limits the Greenback’s upside potential.
Geopolitics and Safe-Haven Flows
Adding to the market’s cautious tone, US President Donald Trump is set to meet Russian President Vladimir Putin in Alaska later today to discuss potential measures to end the war in Ukraine.
While optimism over a diplomatic breakthrough could support risk assets and weigh on the Yen’s safe-haven appeal, any deterioration in talks may have the opposite effect, driving demand for JPY. The Yen often benefits during periods of global political uncertainty due to its status as a safe-haven currency backed by Japan’s strong net foreign asset position.
Upcoming US Data in Spotlight
Friday’s US economic calendar is packed, with Retail Sales, the Empire State Manufacturing Index, and the University of Michigan Consumer Sentiment and Inflation Expectations due for release.
Stronger data could revive USD demand, especially if consumer spending and sentiment remain resilient. Conversely, weaker readings would likely reinforce expectations for imminent Fed cuts, exerting renewed downward pressure on USDJPY.
USDJPY Technical Outlook
From a technical perspective, USDJPY faces immediate resistance near 148.80–149.00, an area reinforced by Thursday’s rally peak. A sustained break above could open the door toward the 150.20 zone, aligning with the 200-day moving average.
On the downside, 147.40 serves as initial support, followed by the more significant 146.90–147.00 region, which coincides with last week’s consolidation range. A decisive move below this could re-expose the 146.20 area, potentially triggering deeper losses toward 145.50.
Momentum indicators suggest short-term consolidation, with the Relative Strength Index (RSI) hovering near neutral levels and MACD signals flattening after the recent volatility spike.
Conclusion: Market Sentiment Heading Into Weekend
With both macroeconomic data and geopolitical developments in play, traders can expect elevated USDJPY volatility heading into the weekend. The BoJ’s hawkish bias, underpinned by strong GDP and higher inflation forecasts, continues to support the Yen’s longer-term outlook.
However, Fed policy expectations remain the swing factor in near-term price action. If incoming US data reinforces the softening growth and inflation narrative, Japanese yen could resume its downward trajectory. Conversely, robust figures may keep the pair range-bound until the Fed’s September policy meeting.
