The Japanese yen has strengthened for the third consecutive session, supported by a retreat in the U.S. dollar and stronger-than-expected GDP growth in Japan. The country’s GDP expanded at an annualized rate of 2.8% in Q4 2024, marking the third straight quarter of growth. Corporate spending, which rose by 0.5% quarter-on-quarter, contributed to this expansion. As a result, the yen appreciated due to a more optimistic outlook on Japan’s economic resilience. The outlook for the yen remains bullish in the near term if economic momentum persists.

Despite challenges posed by the Bank of Japan’s (BoJ) recent policy shifts and interest rate hikes, Japan’s economy has remained stable. The BoJ raised rates to 0.5% in January, the highest in 17 years, and indicated the potential for further hikes. This has increased the yen’s attractiveness, as higher interest rates could lead to capital inflows. Whilst market participants had expected a slowdown in private consumption, the slight increase of 0.1% exhibits ongoing economic strength. The yen is likely to continue benefiting from the BoJ’s tightening cycle.

As inflationary pressures persist, traders are pricing in more rate hikes by the BoJ, which could further support the yen. If the central bank acts more aggressively, the yen’s strength could continue to rally back to its recent December high.