empty
16.05.2025 11:00 AM
Japan on the Brink of Recession

The GDP report published on Thursday revealed that Japan's economy contracted by 0.7% year-over-year in the first quarter—its first annual decline in the past year and significantly worse than expected.

The contraction is primarily attributed to U.S.-imposed trade tariffs and a decline in exports. However, the report also clearly indicated stagnation in private consumption, suggesting that the economy had already begun losing support from external demand even before Trump's April 2 announcement of sweeping "reciprocal" tariffs.

This image is no longer relevant

Japan's economy is highly dependent on external demand, and if tariff negotiations fail to produce positive outcomes, the downturn could deepen in the second quarter—something markets would likely interpret as the official onset of a recession.

As usual, the situation presents a challenge for the Bank of Japan. On the one hand, noticeable wage growth achieved through union pressure is a positive for boosting consumer demand. On the other hand, it also drives inflation higher, thus increasing the need to raise interest rates.

The yen strengthened in response to the GDP report. The unique structure of Japan's economy means that a slowdown leads to reduced raw material imports (on which Japan is heavily dependent), thereby lowering supply. At the same time, the need to contain inflation implies higher BoJ rates and yields—factors that continue to support demand for the yen and remain key in forecasting its trajectory.

The net long position on the yen saw a slight correction to +15.52 billion, maintaining a strong bullish speculative bias. The estimated fair value has again fallen below the long-term average and continues to trend downward.

This image is no longer relevant

We had anticipated a resumption of the USD/JPY decline last week. However, the correction gained strength following the announcement of a tariff agreement between the U.S. and China, which temporarily boosted risk appetite and weakened the yen. Nonetheless, the long-term outlook remains unchanged. Slowing inflation in the U.S. puts downward pressure on yields, as the Fed may become more aggressive with rate cuts, whereas the Bank of Japan has little choice but to gradually unwind the effects of Abenomics through policy tightening.

We expect the bearish trend to continue, with the nearest support zone at 141.00–141.20. At this stage, a deeper decline is possible but too early to confirm.

Kuvat Raharjo,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Evgeny Klimov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

XAU/USD. Analysis and Forecast. Gold is supported by moderate USD weakness and trade-related uncertainty

Today, gold is trading higher, remaining within a sideways trend. Late Thursday, Federal Reserve official Christopher Waller stated that rising risks to the economy could justify a key rate

Irina Yanina 19:15 2025-07-18 UTC+2

AUD/USD. Analysis and Forecast

Today, the AUD/USD pair climbed above the key psychological level of 0.6500, attempting to confirm its recent positive momentum. The main driver behind the Aussie's rise is the weakening

Irina Yanina 13:49 2025-07-18 UTC+2

USD/CAD. Analysis and Forecast

Today, Friday, the USD/CAD pair is pulling back from a three-week high near 1.3775 recorded yesterday. At the moment, prices are trading slightly below the 1.3730 level, showing a modest

Irina Yanina 13:38 2025-07-18 UTC+2

The European Central Bank May Postpone Its Rate Cut Until December

While the euro attempts to stage a correction against the U.S. dollar, a survey of economists suggests that the European Central Bank may delay its final interest rate cut until

Jakub Novak 11:37 2025-07-18 UTC+2

Powell Responds to White House Criticism

Lately, Federal Reserve Chair Jerome Powell has faced increasing pressure, coming under fire from lawmakers, the White House, and U.S. President Donald Trump. In a letter sent on Thursday, Powell

Jakub Novak 11:26 2025-07-18 UTC+2

The U.S. Begins Regulating the Digital Currency Market (Potential for a Correction in Bitcoin and EUR/USD)

The U.S. House of Representatives has passed bills establishing the first federal framework for dollar-backed stablecoins and setting regulations for other digital currencies. The idea of regulating the cryptocurrency market

Pati Gani 09:28 2025-07-18 UTC+2

The Market Favors a Weak Dollar

What could be better for the S&P 500 than a Federal Reserve rate cut amid a still-strong economy? A series of positive labor market and retail sales data, combined with

Marek Petkovich 09:28 2025-07-18 UTC+2

What to Pay Attention to on July 18? A Breakdown of Fundamental Events for Beginners

Several macroeconomic reports are scheduled for release on Friday, but none of them are of major importance. The only noteworthy release is the University of Michigan Consumer Sentiment Index

Paolo Greco 06:13 2025-07-18 UTC+2

GBP/USD Overview – July 18: Is the Market Tired of the Dollar and Trump?

The GBP/USD currency pair once again leaned toward decline on Thursday. After the British pound strengthened on Wednesday evening following another report about Powell's dismissal, the dollar quickly recovered. However

Paolo Greco 03:56 2025-07-18 UTC+2

EUR/USD Overview – July 18: Trump Will Keep Trying to Fire Powell for Another Year

The EUR/USD currency pair continued its steady decline throughout Thursday. As a reminder, the forex market experienced an "explosion" on Wednesday evening. Donald Trump once again attempted to either fire

Paolo Greco 03:56 2025-07-18 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.