Government data released Friday showed that Japanese household spending rose 0.4% in March and 2.1% from a year earlier, both beating market expectations. Moreover, expectations that continued wage gains will boost consumer spending and inflation in Japan suggest that the Bank of Japan may not back off its interest rate hike plans altogether.
In fact, minutes of the BoJ's monetary policy meeting held on March 18-19 revealed on Thursday that the central bank remains ready to raise interest rates further if inflation trends persist. This, in turn, bolstered the case for further policy tightening by the BoJ in 2025 and helped the Japanese Yen gain some positive traction during the Asian session on Friday.
Separately, Japanese real wages declined for the third straight month in March. In fact, inflation-adjusted wages fell 2.1% from a year earlier after a revised 1.5% decline in February and a 2.8% decline in January. Further, the consumer inflation rate used to calculate real wages rose 4.2% YoY in March, down slightly from 4.3% in the previous month.
The data added to concerns about Japan's growth outlook amid uncertainty over US tariffs and ahead of next week's first-quarter Gross Domestic Product report. This, in turn, could act as a headwind for the JPY amid an upbeat market mood, led by optimism over a US-UK trade deal and the start of US-China tariff negotiations in Switzerland this week.
Meanwhile, the positive developments helped ease market concerns that an all-out trade war could trigger a US recession. Moreover, the Federal Reserve's signal that it is not inclined to cut interest rates anytime soon, despite rising economic uncertainties, lifted the US Dollar to a four-week high, which, in turn, should lend some support to the USD/JPY pair.
There isn't any relevant market-moving economic data due for release from the US on Friday. However, scheduled speeches by a number of influential FOMC members will drive the USD demand in the North American session. Further, broader risk sentiment will contribute to producing short-term trading opportunities on the last day of the week.(Newsmaker23)
Source: FXstreet
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