Japanese Yen rises as tariff uncertainty weigh on sentiment
- USD/JPY softens to near 154.35 in Monday’s early Asian session, down 0.46%.
- Trump said he would hike global tariffs to 15% from 10%
- Soft Japan’s inflation data could weigh on expectations of interest rate hikes by the BoJ.
The USD/JPY pair attracts some sellers to around 154.35 during the early Asian trading hours on Monday. The US Dollar (USD) weakens against the Japanese Yen (JPY) amid tariff uncertainty. The US Producer Price Index (PPI) report for January will be in the spotlight later on Friday.
Tariff uncertainty lingered after US President Donald Trump lashed out at the US Supreme Court for striking down his use of emergency powers to impose so-called reciprocal tariffs. On Saturday, Trump stated that he would increase the global tariff from 10% to 15% to preserve protective trade measures and initiate several other investigations.
On the other hand, Japan’s National Consumer Price Index (CPI) rose by 1.5% YoY in January, compared to 2.1% in December. This figure registered its lowest level since March 2022. Core inflation recently hit a two-year low of 2% in January, matching the Bank of Japan's (BoJ) target. The softer inflation report has tempered expectations for an immediate BoJ interest rate hike. This, in turn, could weigh on the JPY and cap the downside for the pair.
Following Prime Minister Sanae Takaichi’s victory in the snap election, traders will closely monitor the potential fiscal spending plans. Japanese Prime Minister Sanae Takaichi said on Friday that necessary spending will be funded as much as possible through the initial budget. She further stated that she will steadily lower the debt-to-GDP ratio and restore fiscal sustainability.
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.
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