Deutsche Bank analysts note Japan’s economy grew faster than expected in Q1 2026, supporting the case for further Bank of Japan (BoJ) rate hikes, yet the Japanese Yen (JPY) weakened slightly against the US Dollar (USD). BoJ swaps still price a high probability of a June hike, while 10-year JGB yields hit a fresh multi-decade high, underscoring tightening expectations.

Robust data meets cautious Middle East outlook

"Early morning data has showed that Japan's economy expanded at an annualised rate of 2.1% in the first quarter of 2026 (compared to the +1.7% anticipated), driven by enhanced consumption and robust exports, thereby bolstering the argument for additional interest rate hikes by the BoJ."

"However, the outlook remains highly uncertain due to the ongoing conflict in the Middle East."

"Despite the bullish growth figures, the Japanese yen has weakened slightly against the dollar following the announcement."

"Overnight BoJ swaps remain relatively stable, indicating around a 77% probability that the central bank will increase rates in June."

"Yields on 10-year JGBs have risen by +4.5bps, trading at 2.76%, marking a fresh multi-decade high as we go to print."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)