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Japan’s Economic Momentum and Tariff Risks
Japan is emerging from a 30-year battle with deflation. Its economy is now expanding faster than its potential growth rate. The chart below shows that Japan’s industrial production increased by 2.5% in February 2025, surpassing expectations of a 2.3% rise. This growth came after three straight months of decline. It also represents the strongest monthly performance since March 2024. The rebound suggests some recovery in manufacturing activity. This may ease concerns about Japan’s economic momentum and support sentiment around the Japanese Yen. However, the impact on USD/JPY remains limited as markets focus more on broader policy signals and global trade developments.
The Bank of Japan’s March meeting summary highlighted growing global uncertainty. Officials warned that new U.S. policies could affect business and consumer sentiment worldwide. These tariff fears influence expectations for BoJ policy changes. Surveys suggest a possible 25 basis point rate hike in July. However, market pricing does not fully reflect that move within six months. Trump’s planned tariff announcement on April 2 may offer more clarity. Still, the risk of counter-tariffs and drawn-out talks keeps volatility high.
The 4-hour chart for USD/JPY shows that the pair has recently broken out of the descending channel. As a result, it is now forming bullish price action. Furthermore, this bullish setup is supported by an inverted head and shoulders pattern. If the price breaks above 151, it will likely initiate an upward trend in USD/JPY.
