Global Economic Update – June 17, 2025

As we adapt to 2025, June 17 is an important day for global markets, investors and policymakers. It has been a busy day with many recent events impacting market sentiment, including:

1) A delicate monetary policy statement from The Bank of Japan;
2) A secession of U.S. retail sales;
3) Continued geopolitical night terrors in the Middle East;
4) A revised global outlook from The World Bank and The OECD.

This long and detailed post breaks down each of these events and their implications for policymakers, investors and traders.

1. Bank of Japan Holds Policy Steady, Slows Taper

The Bank of Japan (BOJ) has confirmed that it will maintain its target policy rate at 0.5%, as expected by analysts. However, the latest surprise to markets—the BOJ decided to slow the pace of its quantitative tightening actions. Previously, the BOJ was reducing bond buys by ¥400 billion each quarter, now it will only be ¥200 billion.

The key takeaways from the BOJ announcement are:

The BOJ continues to be conservative with further policy adjustments as there is still weak domestic demand, low inflation.

The market initially reacted positively with a spike in Japanese yen (JPY) prices, moving USD/JPY lower to nearly 144.50 before settling.

Governor Ueda reiterated the Bank’s flexibility and future rate hikes will depend on wage growth and other inflation metrics.

Though this cautious approach is encouraging because it indicates Japan’s long transition from years of ultra-loose monetary policy is underway, Japan is trying to transition away from this monetary policy without shocking its bond market.

2. U.S. Retail Sales Reveal Mixed Consumer Behavior

Retail sales in the United States declined in May, falling 0.9% from April – the largest decline in four months. The drop was driven by a fall in car sales, which fell 3.5%. Core retail sales, which exclude autos and fuel, increased 0.4%.

Implications:

Although the headline numbers imply that consumers are tired or fatigued, core retail sales still showed strength and suggests that there is still resilience in the consumer sector.

This was interpreted as a mixed bag, but leaning hawkish for the Federal Reserve.

U.S. Treasury yields edged slightly higher, while the U.S. dollar gained against most major currencies.

Ultimately, these sales figures will likely be an important factor for the Fed’s messaging at the next meeting.

3. Geopolitical Flashpoints – Tensions in the Middle East

The renewed conflict between Israel and Iran has caused uncertainty in the markets. What initially seemed to offer hope of a ceasefire has now turned into a deadlock in diplomatic negotiations.

Market Reaction:

Oil prices jumped 2–3% to over $87 per barrel.

Shipping and insurance prices from the Strait of Hormuz—and, while bad news—, are expected, given that ~20% of the world’s crude oil passes through that strait.

Investors fled to safe havens like gold or U.S. Treasuries.

Uncertainty in the region—whether it be geopolitical warming, prolonged uncertainty, or an eventual escalation—will continue to exacerbate delays in supply chains and increased inflation given the same price-forward expectations in energy markets.

4. Fed Policy Meeting Begins- Holding Steady with Uncertainty

The U.S. Federal Reserve is currently engaged in a two-day policy meeting. The marketplace is broadly expecting the Federal Reserve to leave the target interest rates in a steady band of 4.25–4.50%.

Acknowledgements:

Mixed economic conditions with declining retail sales and sticky inflation have created the Fed’s outlook.

Analysts believe the tone will be neutral-to-slightly hawkish with fewer rate cuts expected in the second half of the year.

The results of this meeting will contain vital clues towards the Fed’s inflation plan leading into Q3 of 2025.

5. World Growth Forecast Down

Both the World Bank and OECD have downgraded their global growth forecasts to more pessimistic outlooks globally.

World Bank:

Global GDP growth forecast is down to 2.3% from 2.6%.

Increasing protectionism, supply chain disruption and regional conflict cited as the primary headwinds.

OECD:

Forecasted world growth of 2.9% in 2025-2026.

Warned that trade barriers matter which could exacerbate supply pressures and inflation.

The forecasts suggest that despite stabilizing in developed economies, developing countries may experience prolonged economic distress.

6. Inflation Outlook – Global prices are stabilizing (slowly)

Global inflation peaked above 6% in early 2024 and has gradually descended to the 4%-4.5% range. However, core inflation is proving more stubborn, nudging higher is still more noticeable in several services.

Observations:

Energy prices are, for the moment, inconsistent again stemming mainly from tensions in the Middle East region.

Consumer demand is modest with uneven wage growth across regions.

Central banks (ECB, BOJ) are still not to shift policy quickly.

Although headline inflation is improving, indications suggest underlying conditions are still not in full control suggesting that price stability is still a ways to go.

7. Market & Forex Reactions

Currency Movements:

• USD/JPY – Ranged between 144.50 and 145.20 around BOJ announcements.
• EUR/USD – Softened slightly as a result of USD strength overweighting Eurozone data.
• AUD/USD – Weaker due to weaker Chinese data and geopolitical + expectations.

Commodities:

Oil – Pop, above $87/barrel.

Gold – Tick up amid risk aversion.

Stock Markets:

U.S. Equities – Tech remains pressured with U.S. and European indices remaining flat to down.

Asian Equities – Closed mixed as they reacted to BOJ policy and regional tensions.

8. Not a Comprehensive list of Key Risks to monitor

We are moving into the second half of June and there are several risks evolving that are presenting significant market focus:

The Fed decision and forward rate guidance.

China’s economic recovery (how fast can they recover) paying particular attention to coming industrial output.

Any escalation in the middle east potential conflicts.

The upcoming G20 meetings on climate financing and global taxes for everyone.

Each of them could materially alter market operate in the coming weeks!

9. Conclusion

June 17, 2025 provides a summary view of the complex interconnected world economy. Not to mention Japan drawing back from tapering, falling U.S. retail sales, worsening geopolitical risk, falling global growth forecasts, etc – ‘tonight’s summary has emphasized thoughtful risk management…

For investors and decision-makers, the conclusion is that being flexible and aware of data regionally and globally will be essential to succeeding in volatile markets. Stay tuned for tomorrow’s Fed verdict which is likely to impact the direction of financial sentiment globally through the summer.