Home / Blog / Category / Fundamental Analysis / Japan’s GDP Contraction Highlights Yen Weakness and Economic Challenges
16 May 2024 | FXGT.com

Japan’s GDP Contraction Highlights Yen Weakness and Economic Challenges

USD/JPY Performance: USD/JPY is currently trading at ¥154.60, down 1.30% from this week’s high. The pair experienced selling pressure following the release of softer US CPI data but managed to trim losses after weaker-than-expected Japanese GDP figures.

Japan Q1 GDP Contraction: Japan’s GDP contracted by 0.5% in Q1 2024, compared to a 0.1% expansion in Q4 2023, missing expectations of a 0.4% contraction. The annualized GDP contracted by 2.0%, against the expected 1.5% contraction and prior 0.4% expansion, leading to a weakening Japanese Yen. The slowdown was primarily driven by a decrease in consumer spending amid persistent inflation and sluggish wage growth.

Japan’s Economy: Sticky inflation, sluggish wages, and geopolitical risks are contributing to a cautious outlook for Japan’s economy. The weak yen benefits the export and tourism sectors but squeezes households and small businesses due to higher costs of imported goods.

Wage Growth Outlook: Despite the biggest wage hikes in three decades, real wages are not rising sharply as the yen weakens, squeezing consumer purchasing power. While wages are expected to increase in the second quarter, particularly after several labour unions secured substantial hikes, it remains uncertain how much this will boost consumption.

Impact on BOJ Rate Hike Plans: The weaker-than-expected GDP data creates doubts about the timing of the Bank of Japan’s next rate hike. Analysts suggest the BOJ may hesitate to continue tightening policy if GDP does not rebound in the current quarter. During its April meeting, the BOJ had warned that growth was expected to slow, and inflation was anticipated to increase in the coming quarters. The latest GDP figures complicate the Bank of Japan’s stance, as it must balance supporting the economy with defending a weak yen.

Help us improve this article.
Disclaimer: Any material and information included herein are intended for general marketing purposes only and does not constitute investment advice or recommendation nor an invitation to acquire any financial instrument and/or be involved in any financial transaction. The investor is solely responsible for the risk of his investment decisions and if considers appropriate, he should seek relevant independent professional advice before making any decision. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. Please read full Non-Independent Investment Research Disclaimer here. Risk Disclosure: CFDs are complex instruments and carry a high level of risk of losing money. Read full Risk Disclosure here .

Blog Search

Categories

Blog Categories

Tag

Blog Tags

Register and Share Buttons EN

Register

Loved our latest article?

Share it with your friends and followers!

Copied to clipboard
To top

Leveraged products may not be suitable for everyone and may result in loss of all your capital. Please ensure you fully understand the risks involved and whether trading is appropriate for you. Read Full Risk Disclosure here.