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DBS economists Taimur Baig and Radhika Rao forecast Japan’s first-quarter GDP to expand 1.8% quarter-on-quarter seasonally adjusted, driven by robust exports and investments in AI and semiconductor sectors. Despite this growth, the Japanese yen (JPY) remains under pressure due to trade dynamics and the Bank of Japan’s (BoJ) accommodative monetary policy. The report maintains the full-year GDP growth projection at 0.5%, aligning with market expectations of gradual economic recovery.
The JPY’s weakness persists despite strong GDP figures, highlighting the disconnect between economic fundamentals and currency performance. Traders are closely watching the BoJ’s policy stance, as prolonged ultra-loose monetary conditions could further weigh on the yen. Additionally, global trade tensions and energy prices may amplify volatility in the JPY crosses, particularly against the USD and EUR.
For investors, the report underscores the importance of monitoring central bank policies alongside economic data. The BoJ’s potential delay in tightening policy compared to other major central banks could widen the yield differential, impacting carry trade flows. Market participants should also track upcoming trade balance data and manufacturing PMI for clues on Japan’s export-driven recovery trajectory.
