Japanese GDP and U.S. Import Price Surprises – Currency Thoughts
Japanese GDP and U.S. Import Price Surprises
May 16, 2025
A 0.7% annualized contraction of Japanese GDP between the final quarter of 2024 and the first quarter of this year was steeper than analysts were predicting.
U.S. import prices, which had been projected to decline in April, instead edged 0.1% higher. A 2.6% drop in fuel costs was outweighed by a bigger than expected 0.4% increase in non-fuels in a sign of the initial effects of tariff increases. This release did not immediately impact financial markets. Lower-than-expected CPI and PPI data reported earlier this week have left investors more hopeful that the Fed may cut interest rates later this year. U.S. stock futures are about a half percent higher, and the 10-year Treasury yield has fallen three basis points.
An even larger drop of four-to-five basis points has occurred in the 10-year sovereign debt yields of Germany, France, Italy, Great Britain and Spain, while the 10-year Japanese JGB yield is two basis points lower.
The dollar is unchanged from Thursday’s close against the yen, euro and Mexican peso. The greenback has also risen 0.2% against the Swiss franc, Turkish lira, and sterling but shows drops of 0.3% and 0.1% relative to the New Zealand and Australian dollars. A 1.4% drop in the price of gold has been much more significant than these currency movements and the marginal 0.1% dip in Bitcoin so far today.
Stock markets in the Pacific Rim were mixed this Friday, closing up 0.6% in Australia, 0.5% in Taiwan, and 0.9% in Indonesia, down 0.5% in Hong Kong, 0.7% in New Zealand, and 0.4% in China, and with no net change in Japan’s case. Like U.S. stock futures, major European stock markets are flashing green on the screens.
A 3.3 percentage point drag from net foreign demand was the main depressant in today’s reported first-quarter Japanese GDP data, which despite a quarterly annualized drop of 0.7% produced positive year-on-year growth of 1.7%. Japan’s GDP price deflator increased 0.9% on quarter and 3.3% on year. The strongest component of demand in the quarter was contributed by non-residential business investment, which advanced 5.8% at an annualized rate. Government spending dipped a tad, however, and personal consumption only rose at a 0.2% pace.
A 0.1% year-on-year rise in U.S. import prices was the smallest increase since a 0.1% dip posted last September. U.S. export prices edged 0.1% higher on month in April and posted a 2.0% increase compared to a year earlier.
U.S. housing starts rose 1.6% last month but were 1.7% lower than in April 2024. Building permits fell 4.7% on month and 3.2% on year.
Japanese industrial production in March, which had been initially estimated to have fallen 1.1%, was revised substantially to now show a 0.2% monthly rise, which was associated with a 1.0% on-year advance. Output in the first quarter also recorded a 1.0% increase from a year earlier but was 0.3% lower than the average level in the prior quarter.
Euroland’s unadjusted trade surplus of EUR 62 billion in the first quarter was EUR 7 billion and 10.7% larger than the surplus a year earlier. The seasonally adjusted surplus in March of EUR 27.9 billion exceeded those of EUR 22.7 billion in February and EUR 13.6 billion in January.
Croatian consumer price inflation in April matched March’s 4-month low of 3.2%. From a peak of 13.5% in November 2022, such had imploded previously to a 30-month low of 1.6% in September 2024. Likewise, Italian CPI inflation of 1.9% last month matched March’s 18-month high. Italian CPI inflation peaked at 11.8% in October 2022 and fell to as low as 0.6% by the end of 2023.
Swiss industrial production increased 5.4% last quarter and recorded the largest year-on-year advance (8.5%) in 14 quarters.
Measures of expected consumer price inflation over the next 1-2 years were a bit higher this quarter than those made three months ago but, at 2.3-2.4%, low enough to maintain confidence that the Reserve Bank of New Zealand’s key interest rate can be lowered further.
Late yesterday came news of a further 50-basis point cut in the Bank of Mexico’s overnight interbank interest rate to 8.5%. (see my review for further details). At 8.5%, the new rate is at its lowest level since September 2022 and 275 basis points below its previous cyclical peak.
GDP in Hong Kong grew 1.9% on quarter and 3.1% on year during 1Q 2025, while GDP in Malaysia during the same period rose by 0.7% on quarter and 4.4% on year.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Mexico, Japanese GDP and industrial production, U.S. import prices and housing starts
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