Japan Surprises to the Upside, but the Picture Is Already Stale
Japan's Q1 GDP came in well above expectations this morning, expanding 0.5% quarter-on-quarter, or 2.1% on an annualized basis, against a 1.7% consensus and a downwardly revised 0.2% in Q4. Private consumption (+0.3%) and a sharp pickup in exports (+1.7%) carried most of the load, with public investment turning positive for the first time in three quarters.
The catch is that the print captures activity that pre-dates the U.S.–Israeli strikes on Iran on 28 February. Oxford Economics flagged the obvious: "the Q1 GDP is already in the rear-view mirror." The Bank of Japan has already trimmed its FY2026 growth forecast to 0.5% from 1.0% and lifted core inflation outlook to 2.8% from 1.9%, citing crude oil's pass-through to corporate margins and household real income. In short: strong rear-view, weaker windshield.
Yen Approaches the Line in the Sand
USD/JPY traded around 159.04 this morning, a sixth straight session of gains and the strongest dollar level since late February. The pair has now retraced over half the move triggered by Tokyo's late-April intervention, which deployed an estimated $32 billion over the Golden Week window. With the 160 threshold approaching, the question for traders is whether the Ministry of Finance steps in again or tolerates further weakness, given the carry differential after April's hot U.S. CPI.
BoJ board member Kazuyuki Masu argued last week that rates should be raised "as soon as possible." The April minutes (released earlier this month) showed three members already dissenting in favour of a hike to 1.0%. That hawkish lean, combined with Treasury Secretary Bessent's public support for Tokyo's stabilization efforts, gives Japanese authorities room to act.
A Hawkish Fed, with the Minutes Tomorrow
Markets are now bracing for the FOMC minutes from Powell's final meeting, due Wednesday. The April 29 decision held rates at 3.50–3.75% but produced four dissents, the most since October 1992. Three of those objected to keeping the easing bias in the statement, a clear signal that the hawkish bloc is growing. Kevin Warsh was confirmed as the next Fed Chair on May 13 by a 54–45 vote, the most partisan ever for the role, but his first FOMC meeting isn't until June 16–17.
April CPI didn't help the dovish case either. Headline came in at 3.8% year-on-year, the highest reading since May 2023, with gasoline up 28.4% over twelve months. CME futures are pricing essentially zero chance of a 2026 cut and roughly 3.5% odds of a hike before year-end. The minutes tomorrow will tell us how seriously the committee discussed that hike scenario.
Oil Keeps the Inflation Floor in Place
WTI is hovering near $105 and Brent is above $110, with the Strait of Hormuz still largely closed and the U.S. blockade of Iranian ports intact. The IEA warned this week that global oil inventories are drawing down rapidly. Until a memorandum of understanding is actually signed and not just discussed, the energy floor under inflation stays exactly where it is. Gold, despite the geopolitical backdrop, has slid to around $4,550, weighed down by dollar strength and a fading rate-cut narrative.