USD/JPY Faces Pressure as Japan GDP Growth Supports BOJ Rate Hikes

USD/JPY faces renewed downside pressure after Japan's economy returned to positive growth in Q4 2025, bolstering the case for continued Bank of Japan interest rate normalization. The GDP data, while modest, provides the BOJ with additional justification to maintain its tightening trajectory, a sharp contrast to the Federal Reserve's increasingly dovish posture amid cooler US inflation readings. The softer US CPI data has lifted Asian equity markets broadly, reflecting expectations that the Fed may be closer to easing policy. This divergence in central bank paths — a tightening BOJ versus a potentially easing Fed — is a powerful bearish catalyst for USD/JPY. The yen has strengthened as rate differentials between US and Japanese government bonds narrow. Technically, USD/JPY faces resistance at recent consolidation highs, while support is building at lower levels as the bearish trend gains traction. Traders should closely monitor upcoming BOJ commentary and additional US inflation metrics for confirmation of the diverging policy theme, which could drive sustained yen appreciation in the near term.