Japanese Yen remains subdued despite stronger-than-expected GDP data

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USD/JPY extends its gains for the seventh consecutive day, trading around 159.00 during the Asian hours on Tuesday. The currency pair appreciates as the Japanese Yen (JPY) remains subdued despite stronger-than-expected preliminary economic growth data from Japan.

USD/JPY rises as a subdued Japanese Yen offsets stronger-than-expected preliminary Japanese GDP growth data.
Japan’s Q1 2026 GDP grew 0.5% quarter-on-quarter, beating forecasts and accelerating from Q4’s revised 0.2%.
Geopolitical tensions eased temporarily as President Trump delayed a planned military strike on Iran at Gulf states' request.

In the first quarter of 2026, Japan’s Gross Domestic Product (GDP) grew 0.5% quarter-on-quarter, accelerating from a downwardly revised 0.2% in the final quarter of 2025 and exceeding market expectations of 0.4%. This represented the strongest quarterly expansion since the third quarter of 2024. On an annualized basis, Japan’s economy expanded at a rate of 2.1% in Q1, up from a downwardly revised 0.8% growth in the previous quarter and surpassing market forecasts of 1.7%, marking the fastest pace of expansion in six quarters.

However, risks to the Japanese economy have heightened due to elevated oil prices linked to the closure of the Strait of Hormuz since the eruption of the Middle East conflict. Japan is particularly vulnerable to this energy shock because of its heavy reliance on oil imports from the Middle East, with surging fuel costs driving up inflation while simultaneously weighing on corporate profits and the broader economy.

Meanwhile, geopolitical tensions saw a temporary shift as US President Donald Trump stated he was holding off on a planned military attack against Iran at the request of Gulf states. A Bloomberg report indicated that the president called off the strike, which had been scheduled for Tuesday, after an appeal by leaders of Persian Gulf allies who requested more time to pursue a diplomatic resolution. The US administration added that Washington remains prepared to attack if an acceptable deal is not reached, though no specific deadline has been set.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.