Japanese Yen seems poised to appreciate further amid a global meltdown
The Japanese Yen (JPY) edges lower during the Asian session on Friday amid worries about the potential economic fallout from US President Donald Trump's reciprocal tariffs. The concerns forced investors to scale back their bets that the Bank of Japan (BoJ) will hike interest rates at a faster pace and undermine the JPY. However, signs of broadening inflation in Japan keep the door open for further policy tightening by the BoJ.
This, along with the prevalent risk-off environment, could offer some support to the safe-haven JPY. Apart from this, sustained US Dollar (USD) selling, fueled by expectations that Trump's tariffs will trigger a US recession and bets that the Federal Reserve (Fed) will resume its rate-cutting cycle soon, should contribute to capping the USD/JPY pair. Traders might also opt to wait for the release of the US Nonfarm Payrolls (NFP) report.
In a major blow to Japan's auto industry, which accounts for around 3% of gross domestic product, US President Donald Trump's 25% tariff on car imports takes effect as scheduled on Thursday. Moreover, bets for early interest rate hikes by the Bank of Japan retreated amid concerns that harsher US reciprocal tariffs announced on Wednesday could negatively impact Japan's economy.
The yield on the benchmark 10-year Japanese government bond tanked on Thursday, posting its biggest drop since August 5 and hitting its lowest level since February 26. This, in turn, is seen weighing on the Japanese Yen during the Asian session on Friday and assisting the USD/JPY pair to register a modest recovery from the lowest level since October touched the previous day.
Meanwhile, Japan's Prime Minister Shigeru Ishiba said on Thursday that he will not hesitate to directly approach US President Donald Trump, if appropriate, and will continue to demand the US to reconsider tariff measures. Separately, Japan's Finance Minister Shunichi Kato warned earlier this Friday that tariffs could have a significant impact on trade systems and global economies.
BoJ Governor Kazuo Ueda said that Trump tariffs are likely to put downward pressure on Japan, and global economies, though reiterated that the BoJ will guide monetary policy appropriately from the standpoint of sustainably achieving a 2% inflation target. BoJ Deputy Governor Shinichi Uchida said that the central bank will raise interest rates if underlying inflation heightens.
This comes on top of strong Tokyo consumer inflation figures on Friday, which backs the case for further tightening by the BoJ. In contrast, traders are ramping up expectations for the Federal Reserve to start lowering borrowing costs again in June and cut interest rates four times this year amid concerns that Trump's policies will trigger an all-out trade war and a global recession.
The outlook, in turn, led to the overnight slump in the US Treasury bond yields, dragging the yield on the benchmark 10-year US government bond and the US Dollar to their lowest level since October. This might keep a lid on the USD/JPY pair's attempted recovery. Traders might also opt to wait for the release of the US monthly employment details before placing aggressive bets.(Newsmaker.id)
Source: Fxstreet
