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- Japanese Yen bulls seem non-committed amid worries about Trump’s new tariffs
Japanese Yen bulls seem non-committed amid worries about Trump’s new tariffs
- The Japanese Yen edges higher as Trump’s new tariffs boost demand for safe-haven assets.
- Bets that the BoJ will hike rates further turn out to be another factor underpinning the JPY.
- Expectations that the Fed could delay rate cuts benefit the USD and lend support to USD/JPY.
The Japanese Yen (JPY) attracted some safe-haven flows during the Asian session on Tuesday in reaction to US President Donald Trump's new tariffs on steel and aluminum imports. Apart from this, the Bank of Japan’s (BoJ) plans to hike interest rates further turn out to be another factor that underpins the JPY. This, in turn, keeps the USD/JPY pair below the 152.00 mark and a confluence support-breakpoint-turned-resistance retested on Monday.
Meanwhile, Trump's no-exemption tariffs on commodity imports effectively end deals with the European Union, the United Kingdom, Japan, and other countries. This endangers Japan's economic stability and acts as a headwind for the JPY. Moreover, expectations that Trump's policies would boost inflation and delay rate cuts by the Federal Reserve (Fed) lend support to the US Dollar (USD) and help limit losses for the USD/JPY pair.
Japanese Yen draws support from a combination of factors; bulls still have the upper hand
- US President Donald Trump signed an order Monday that imposes a 25% tariff on imports of steel and aluminum into the US, fueling trade war fears and underpinning the safe-haven Japanese Yen.
- Bank of Japan Governor Kazuo Ueda and Deputy Governor Himino recently signaled the possibility of another interest rate hike if the economy and prices align with the central bank's projections.
- Adding to this, BoJ board member Naoki Tamura said last week policymakers need to bump up interest rates to 1% by the second half of the fiscal year beginning in April to fend off rising prices.
- Moreover, several BoJ officials are in favor of more rate hikes as inflation is weighing on consumer spending. Japan's core consumer inflation has exceeded the BoJ's 2% target for nearly three years.
- Meanwhile, worries that Trump's policies would reignite inflation in the US might force the Federal Reserve to stick to its hawkish stance on the back of a still resilient US economy and labor market.
- The market focus now shifts to Fed Chair Jerome Powell's two-day congressional testimony starting this Tuesday, which might provide cues about the rate-cut path and influence the US Dollar.
- Apart from this, the release of the latest US consumer inflation figures on Wednesday will determine the near-term USD trajectory and provide some meaningful impetus to the USD/JPY pair.
USD/JPY remains vulnerable while below the 152.50 confluence support breakpoint
From a technical perspective, the overnight failure near the 152.50 confluence support breakpoint now turned resistance, and the subsequent downtick favors bearish traders. Moreover, oscillators on the daily chart are holding deep in negative territory and are still away from being in the oversold zone. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the downside.
However, any further slide is more likely to find some support near the 151.30 horizontal zone ahead of the 151.00-150.90 area, or the lowest level since December 10 touched last Friday. Some follow-through selling below will reaffirm the negative bias and make the USD/JPY pair vulnerable to weaken further to the 150.00 psychological mark with some intermediate support near the 150.55 region.
On the flip side, the 152.50 confluence – comprising the 100- and the 200-day Simple Moving Averages (SMAs) – might continue to act as a strong immediate hurdle. A sustained strength beyond, however, might trigger a short-covering move and allow the USD/JPY pair to reclaim the 153.00 round figure. The recovery could extend further, though it is likely to remain capped near the 153.75 region.
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.
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