Japan’s economy is outperforming forecasts, with strong fourth-quarter GDP figures adding to speculation that the Bank of Japan (BOJ) could tighten policy sooner than expected. As the yen strengthens, USD/JPY is nearing the key 151 level. A short-term bounce is possible before a deeper move lower.
Japan’s GDP Surpasses Expectations, Raising Rate Hike Bets
The yen led gains among major currencies on Monday after Japan’s latest growth data beat estimates. GDP grew 2.8% year-on-year in Q4, well above the 1% forecast. Q3 growth was also revised higher, from 1.2% to 1.7%. On a quarterly basis, GDP expanded 0.7%, exceeding the expected 0.3%, with the previous quarter revised up to 0.4%.
These figures strengthen expectations that the BOJ could raise rates earlier than anticipated. While most economists still expect a 25 basis point hike to 0.75% by mid-year, stronger-than-expected economic data could accelerate that timeline. Markets now see rates potentially hitting 1% by the end of 2025.
Japan’s Economy Outshines Global Peers
Compared to other economies, Japan’s recent data continues to exceed expectations. The Citi Economic Surprise Index (CESI) for Japan is climbing and nearing a 52-week high. This index tracks how economic data compares to forecasts, with positive values indicating stronger-than-expected results. Japan’s consistent improvement highlights its economic resilience relative to other major economies.
Key Events to Watch
While Japan’s strong data is in focus, global markets are also watching central bank decisions and economic reports this week:
- 14:30 AEDT – RBA interest rate decision (-25bp expected)
- 18:00 AEDT – UK employment and earnings data
- 20:30 AEDT – BOE Governor Bailey’s speech
- 00:30 AEDT – Canada CPI release
- 02:20 AEDT – Speech by FOMC member Daly
Markets are especially focused on the Reserve Bank of Australia’s (RBA) rate decision. A 25bp cut is expected, but any surprises in the press conference could influence sentiment and future rate expectations.
USD/JPY Technical Outlook: 151 Support in Play
USD/JPY has fallen for three straight sessions, bringing the 151 level into focus. A test of this support seems likely, but an immediate breakdown isn’t guaranteed. The inverted hammer pattern on the weekly chart suggests some hesitation from sellers, while the US dollar index remains near a key technical level, hinting at a possible bounce.
Monday’s price action was relatively quiet, with USD/JPY holding above Friday’s low, which is only slightly below January’s low. Friday’s bearish candle also saw lower trading volume, signaling a lack of strong selling conviction. This suggests a false breakdown below 151 could happen before a short-term rebound, giving bears time to reassess before a potential move lower.
While downward pressure remains, traders should be cautious of short-term volatility before a decisive break below 151, which could open the door to 150 in the coming sessions.
