The Japanese Yen remains depressed through the early European session on Tuesday amid worries that Japan will also be a target for Donald Trump’s trade tariffs.
Furthermore, the US president’s decision to delay plans to impose trade tariffs on Canada and Mexico by 30 days dents demand for safe-haven assets, which further undermines the safe-haven JPY. This, along with the emergence of some US dollar buying, assists the USDJPY pair to hold above the 155.00 psychological mark.
Any meaningful JPY depreciation, however, seems limited amid bets that the Bank of Japan will hike rates further. Adding to this, the prospects for further policy easing by the Federal Reserve, which would result in a narrowing rate differential between Japan and the US, contribute to limiting losses for the JPY.
Hence, it will be prudent to wait for strong follow-through selling before confirming that the USDJPY pair has formed a near-term bottom and positioning for any meaningful appreciating move.
Prime Minister Shigeru Ishiba is set to meet with Trump later this week and their conversation may provide more hints about the risk of tariffs as Japan has a large trade surplus with the US.
Japan’s Finance Minister Katsunobu Kato said on Monday that the government intends to monitor the impact of Trump’s new tariffs on its currency amid worries about the potential economic fallout.
Bank of Japan’s Summary of Opinions released on Monday showed board members agreed that it will be necessary to continue hiking interest rates if economic activity and prices remain on track. Moreover, a rise in core inflation in Japan’s capital city Tokyo, by the fastest annual pace in nearly a year, keeps alive expectations for further interest rate hikes by the Bank of Japan.
Meanwhile, Fed governor Michelle Bowman said on Friday that rate cuts are still expected this year, but added that future moves should be cautious and gradual, with time to assess data.
Traders now look forward to the US economic data – Job Openings and Labor Turnover Survey (JOLTS) and Factory Orders – for short-term opportunities later during the North American session.
The USDJPY pair needs to find acceptance above the 156.00 mark for bulls to retain near-term control
USDJPY chart by TradingView
(Source: OANDA)