Compared with the first three months of the year, Japan's economy grew by 0.3% in the second quarter of 2025, exceeding expectations of 0.1% despite headwinds from US tariffs. The GDP beat was mainly due to net exports, which contributed 0.3 percentage points to GDP. Japan's GDP grew by 1.2% year-on-year in the second quarter, down from 1.8% year-on-year growth in the first quarter. The country's GDP grew by 1% on an annualized basis, exceeding the 0.4% growth expected in an institutional survey. In contrast, revised GDP grew by 0.1% in the first quarter, higher than the general expectations of economists. The GDP beat was mainly due to the resilience of exports, which increased export growth by 0.3 percentage points, while export growth contracted by 0.8% in the first quarter of this year. According to data from Japan's Ministry of Trade, Japan's trade deficit narrowed in April-June compared with the first quarter. Japanese Economy Minister Akazawa said that US tariffs could lower Japan's real GDP by 0.3-0.4%.



Following the data release, market expectations grew that the Bank of Japan might end its ultra-loose monetary policy early, becoming a key factor supporting the yen's rise. The USD/JPY pair dipped shortly after the data release, retesting a two-week low, hitting an intraday low near 147.10, down 0.40%. However, it remained nearly 100 points above Thursday's low of 146.15. Previously, the market generally expected the Bank of Japan to begin adjusting its policy in the first half of 2026, but the strong economic data could bring this timeline forward.


(USD/JPY intraday chart)

Japanese Economy Minister Akazawa said the government and the Bank of Japan are striving to achieve a 2% inflation rate, which will promote strong economic growth.

Japanese Finance Minister Katsunobu Kato said on Friday that monetary policy falls under the purview of the Bank of Japan. Kato further said he expects the Bank of Japan to adopt appropriate monetary policy to achieve its price target sustainably and stably.

On the other hand, the US dollar index fell back in the Asian session on Friday after a slight rise on Thursday, with its recovery momentum clearly weakening. This was mainly due to investors taking profits before the weekend and a cooling of optimism about recent US economic data.

The dollar's appeal was somewhat dampened by slightly higher-than-expected U.S. initial jobless claims data on Thursday, which suggested there could be some easing in the labor market.

Looking ahead, investors will focus on US retail sales data and the University of Michigan's consumer confidence index, both released Friday evening, which could have a fresh impact on the US dollar. Meanwhile, the Bank of Japan's policy direction remains a key factor influencing the yen, and any signal of a policy adjustment could trigger a sharp market reaction.

Analysts at Mitsubishi UFJ Financial Group said: "Japan's second-quarter GDP data performed strongly, which provided strong support for the yen. If subsequent inflation data can also follow up, expectations of a policy shift by the Bank of Japan will be further strengthened, and the yen is expected to continue its rebound."

As for the US dollar, its medium- and long-term trends still depend on the relative strength of the US economy and the Federal Reserve's monetary policy path.

Technical Analysis:

USD/JPY is trading below the middle track of the original rising channel and is forming a head and shoulders top pattern in the short term. On Thursday, the bears launched an attack on the neckline, increasing the possibility that the market will develop downward.

USD/JPY is currently supported in the 145.00-145.50 range. If it falls below the key level of 145.00, it may further look towards 144.00. The upper resistance level is in the 147.80-148.50 range. If it can break through this range, it may retest the 149.00 integer mark.


(USD/JPY daily chart, source: Yihuitong)

At 14:05 Beijing time, the USD/JPY exchange rate was 147.11/12.