- The Japanese Yen continues losing ground amid worries about Trump’s trade tariffs.
- Fed’s hawkish stance revives the USD demand and lends support to the USD/JPY pair.
- Rising bets for another BoJ rate hike in March should limit any meaningful JPY slide.
The Japanese Yen (JPY) drifts lower for the third straight day on Wednesday and slides to a one-week low against its American counterpart during the Asian session. Worries that US President Donald Trump’s no-exemption tariffs on commodity imports could endanger Japan’s economic stability, along with a generally positive tone around the equity markets, undermine the safe-haven JPY. Apart from this, the emergence of some US Dollar (USD) buying lifts the USD/JPY pair back closer to mid-153.00s in the last hour.
Federal Reserve (Fed) Chairman Jerome Powell said on Tuesday that the US central bank is in no rush to cut rates amid concerns that Trump’s trade policies could fuel inflation, which, in turn, helps revive the USD demand. Furthermore, Trump’s remarks temper hopes for a sharp narrowing of the US-Japan rate differential and contribute to driving flows away from the lower-yielding JPY. That said, the growing acceptance that the Bank of Japan (BoJ) will hike interest rates again could limit any further JPY losses.
Japanese Yen bears seize control amid concerns that Trump’s tariffs could threaten Japan’s economic stability
- US President Donald Trump signed executive orders to impose 25% tariffs on steel and aluminum imports from March 12. Trump also signaled he would look at imposing additional tariffs on automobiles, pharmaceuticals, and computer chips, and promised broader reciprocal tariffs to match the levies other governments charge on US products.
- The announcement raises the risk of a further escalation of global trade tensions and threatens to negatively affect the Japanese economy. This, in turn, is seen weighing heavily on the Japanese Yen and assists the USD/JPY pair to build on a one-week-old goodish recovery move from sub-151.00 levels, or a near two-month low touched last week.
- Japan’s Finance Minister, Katsunobu Kato said earlier this Wednesday that he will assess the impact of US tariffs on the Japanese economy and respond appropriately. Separately, Japan industry minister Yoji Muto requested the US to exclude Japan from steel and aluminum tariffs. This, however, does little to provide any respite to the JPY bulls.
- Federal Reserve Chair Jerome Powell, in remarks before the Senate Banking Committee on Tuesday, struck a more hawkish tone and called the economy strong overall with a solid labor market. Powell added that inflation is closer to the 2% goal but still somewhat elevated and signaled that policymakers aren’t in a rush to push interest rates lower.
- Bank of Japan Governor Kazuo Ueda reiterated earlier today that the central bank will conduct monetary policy appropriately in order to achieve the 2% inflation target. Moreover, the recent wage growth data and the broadening inflationary pressures in the economy back the case for another BoJ rate hike move at the March policy meeting.
- Traders now look forward to the release of the latest US consumer inflation figures, which, along with Powell’s congressional testimony, will drive the US Dollar and the USD/JPY pair. The headline US Consumer Price Index is seen rising 2.9% YoY in January and the core CPI (excluding food and energy prices) coming in at a 3.1% YoY rate.
USD/JPY is likely to attract fresh sellers and remain capped near the 38.2% Fibo. level, around the 154.00 mark
From a technical perspective, a sustained breakout above the 152.75 confluence hurdle could be seen as a key trigger for bullish traders and support prospects for a further intraday appreciating move. The said area comprises the 23.6% Fibonacci retracement level of the January-February decline, the 200-day Simple Moving Averages (SMA), which, in turn, should act as a pivotal point for the USD/JPY pair.
Meanwhile, oscillators on the daily chart – though they have been recovering – are still holding in negative territory. This, in turn, suggests that any subsequent move-up is likely to attract fresh sellers and remain capped near the 154.00 mark. The latter coincides with the 38.2% Fibo. level, above which the USD/JPY pair could accelerate the recovery towards the 154.70-154.75 region en route to the 155.00 psychological mark.
On the flip side, the 153.00 round figure, followed by the 152.75 confluence now seems to protect the immediate downside. A convincing break below the latter would reaffirm the near-term negative outlook and drag the USD/JPY pair back below the 152.00 mark, towards the next relevant support near the 151.30-151.25 region. Spot prices could eventually drop to sub-151.00 levels, or a near two-month low touched last Friday.
Japanese Yen FAQs
The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.
One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.
Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.
The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Source: https://www.fxstreet.com/news/japanese-yen-dives-to-one-week-low-against-usd-amid-rising-trade-tensions-202502120232