The yen strengthened on Monday after Japan reported better-than-expected economic growth, while the greenback remained near a two-month low as investors trimmed bets on new US tariffs.
The dollar was last trading down 0.4% against the yen at 151.63, after falling as low as 151.48 on a report that Japan’s economy grew more than expected in the fourth quarter, driven by rising business spending and a surprise pick-up in domestic consumption.
The development reinforced expectations that the Bank of Japan (BOJ) will raise interest rates more this year. Markets are now expecting around 37 basis points of rate hikes by December.
“The key thing we see is that nominal household consumption is growing much faster than actual consumption, and this gap remains wide, which could activate the BOJ’s inflation control mode,” said Krishna Bhimavarapu, APAC economist at State Street Global Advisors.
“At the very least, the data allays concerns about a slowdown in consumption, and is a positive sign for the BOJ to implement another rate hike, which could come sooner than expected.”
In broader markets, the US dollar struggled to recover from last week’s decline after weak US retail sales on Friday and President Donald Trump’s delay of retaliatory tariffs.
US stock and bond markets were closed for Presidents’ Day, but dollar trading continued in international markets.
The dollar index was last trading at 106.8, unchanged on the day, after falling 1.2% last week.
On the geopolitical front, attention now turns to reports that talks to end the Russia-Ukraine conflict will begin in Saudi Arabia this week.
The euro was last down 0.13% at $1.0478, after hitting a two-week high of around $1.051 on Friday.
The pound sterling rose 0.1% to $1.2595, after hitting a two-month high of around $1.263 on Friday.
“The US dollar’s weakness stems from optimism that tariffs may not be as big a disruption as expected – but this is still uncertain, and the Ukraine issue remains a factor in the background,” said Rodrigo Catril, senior FX strategist at National Australia Bank.
“In addition, economic data also suggests that US economic momentum is slowing, which is putting pressure on the US dollar.”
The Australian dollar rose to a two-month high against a weaker US dollar and was last trading at $0.6363, ahead of the Reserve Bank of Australia (RBA) interest rate decision on Tuesday.
The RBA is expected to cut interest rates by a quarter point, its first cut in more than four years, in line with other major central banks’ moves in their monetary easing cycle.
The New Zealand dollar also rose to a two-month high before easing slightly to $0.5733, ahead of the Reserve Bank of New Zealand’s monetary policy decision on Wednesday, where markets expect a 50 basis point rate cut.
