Japanese Yen Rises as Tariff Tensions and Fed Bets Weigh on Dollar.
The Japanese Yen (JPY) is holding firm against a broadly weaker US Dollar (USD) during Tuesday’s Asian session. While it hasn’t yet gained strong follow-through momentum, the currency is attracting safe-haven flows amid global economic uncertainty, rising domestic wage data, and diverging policy outlooks between the Bank of Japan (BoJ) and the US Federal Reserve (Fed).
With markets jittery over renewed trade tensions under former President Donald Trump’s tariff threats and speculation of upcoming US rate cuts, the JPY’s upside bias looks increasingly sustainable.
Safe-Haven Flows Give JPY a Boost
As geopolitical and economic uncertainty mounts, investors are flocking to the safety of the Japanese Yen. One of the key drivers behind this trend is the growing concern over a potential global economic downturn spurred by Trump’s proposed tariff policies. These fears have reignited the JPY’s appeal as a reliable safe-haven asset during times of market stress.
Trump’s aggressive trade stance—particularly toward China—has sparked fears of a new era of global trade disruption. He recently warned of a potential 50% tariff on Chinese imports if Beijing fails to roll back its current retaliatory 34% import fee on American goods. Such threats only intensify global investor anxiety, especially for export-heavy economies like Japan.
Japanese Yen Rebounds After Overnight Dip
After suffering some overnight losses, the Japanese Yen found support from dip-buyers early Tuesday. The currency has managed to claw back some of its value, driven by expectations that the BoJ will maintain its hawkish tilt in the months ahead.
Despite worries that Japan’s own economy could be affected by US tariff policies, markets are confident that the BoJ won’t back away from its tightening cycle anytime soon. Rising domestic wage data and signs of sticky inflation have only added to this sentiment.
Wage Growth Signals BoJ May Stay Hawkish
Recent data released on Monday shows a notable increase in Japan’s Nominal Wages, which rose 3.1% year-over-year in February, up from a downwardly revised 1.8% the previous month. While real wages still contracted by 1.2%, this was due to inflation remaining elevated at 4.3% YoY, which reflects strong underlying price pressures.
Spring wage negotiations further supported this trend, with average wage increases reaching 5.47%. This substantial boost in compensation, paired with rising inflation, bolsters the argument for the BoJ to continue tightening its monetary policy into 2025.
Fed Dovish Shift Keeps USD on the Defensive
On the other side of the Pacific, the US Dollar is losing steam amid rising speculation that the Fed may resume its rate-cutting cycle soon. The market narrative is shifting, especially with Trump’s tariff policies threatening to slow down the US economy further.
Fed Chair Jerome Powell’s cautious tone last week also reinforced dovish expectations. He noted that the Fed is in no rush to alter its monetary policy and that any inflationary impact from the new tariffs would be watched closely. At the same time, Trump has been pressuring the Fed to cut interest rates rapidly, arguing that the US economy remains strong and can handle it.
Markets Now Pricing In Four Fed Cuts in 2025
Investors have started to price in an aggressive easing path for the Fed. Current futures market data indicates at least four rate cuts could be on the table before the year ends. This would drastically reduce the yield differential between the US and Japan, making the JPY more attractive compared to the USD.
The USDJPY pair, as a result, remains under pressure and is struggling to hold its ground despite short-term attempts to recover from last week’s multi-month lows.
Recession Fears Add Fuel to JPY’s Rally
Aside from monetary policy divergence, broader economic concerns are favoring the JPY. Markets are worried that steep tariffs could push the global economy closer to a recession. Given Japan’s reputation as a safe, stable economy, the Yen typically strengthens in such scenarios.
The Trump administration’s trade war tactics are seen as a direct threat to global demand. If enacted, such sweeping protectionist policies could disrupt supply chains, increase input costs, and ultimately weigh on global growth—all of which boost safe-haven demand for the JPY.
No Major US Data Today – Focus on Fed and CPI
In terms of data, Tuesday is light for US macroeconomic releases, leaving the USD at the mercy of sentiment-driven moves. Market participants will be closely watching a speech from San Francisco Fed President Mary Daly, which could offer more insight into the Fed’s thinking.
The bigger events lie ahead, with the FOMC meeting minutes due on Wednesday and US Consumer Price Index (CPI) data on Thursday. These releases could be pivotal in shaping expectations around the Fed’s next move, especially as inflation dynamics remain a hot topic.
Technical Outlook: Cautious Optimism for Japanese yen Bulls
Technically, the JPY remains in a bullish posture on intraday charts, although it faces resistance due to improved global risk sentiment. If upcoming US data confirms a cooling economy or if Fed speakers maintain a dovish tone, the USDJPY pair may test lower support levels again.
Conversely, any sudden escalation in US-China trade tensions could send risk assets lower and push the JPY higher in a classic flight-to-safety reaction.
Conclusion: JPY Upside Looks Intact
All factors considered, the Japanese Yen is in a favorable position to extend its gains. Strong domestic wage growth, persistent inflation, BoJ’s likely policy tightening, and increasing demand for safe-haven assets form a solid foundation for JPY bulls.
With the USD under pressure from dovish Fed expectations and the threat of a global slowdown due to Trump’s trade stance, the path of least resistance for the Yen appears to be upward. Investors will continue watching trade developments and key macroeconomic indicators closely, but for now, the JPY stands tall amid the global uncertainty.
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