The yen slid as Trump announced plans to impose 25% tariffs on all US imports of steel and aluminum. Japan has requested an exemption for its companies from these fresh tariffs. “Yen underperformance is likely due to reciprocal tariff uncertainty,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp.
in Singapore. “There is a genuine risk that Japan may be hit, complicating the near-term outlook for the yen.”
Even after the latest downturn, the yen remains the best performer among Group-of-10 currencies against the dollar this year. However, any further weakness may draw the attention of Japanese authorities who have previously warned against excessive movements in the currency markets.
A weaker yen could push the BOJ to hike rates sooner. “All eyes are on how Tokyo maneuvers through the looming trade turbulence — and whether BOJ policymakers will be forced to intervene” if the yen weakens further, noted Stephen Innes, managing partner at SPI Asset Management. The Japanese currency has been under pressure recently during Tokyo sessions, which traders attribute to Japanese retail investors’ appetite for overseas equities.
yen slides amid trade uncertainty
It also reflects the unwinding of long-yen positions by offshore accounts, reducing bets on a hawkish BOJ. Overnight index swaps are pricing in a 78% chance of a BOJ rate hike by July and have factored in certainty by October, a timeline pushed back by a month since Friday.
Ueda mentioned that the size of interest rate hikes will depend on the economy, inflation, and financial conditions at the time. Federal Reserve Chair Jerome Powell stated on Tuesday that the central bank doesn’t need to rush to adjust interest rates, adding to concerns that the interest rate differentials between the US and Japan will remain wide. The sudden bout of yen weakness looks like traders are catching up to the dangers that Trump’s disruptive trade policies may end up being at least as negative for Japan’s currency.
Concerns that the yen gained too fast, too soon also loom, especially with upcoming US inflation data that could influence rate cut expectations. Traders will be closely monitoring the US inflation data expected to show consumer prices, excluding food and energy, rose 3.1% in January from a year ago. Any lessening expectations for Fed rate cuts may sustain pressure on the yen.
“The real question is can you really afford to be a yen bull right now,” said Mingze Wu, currency trader at Stonex Financial Pte in Singapore. “Yen longs have been very popular recently — but after Powell’s comments and with CPI coming up, how can you not be worried?”
