The Japanese Yen (JPY) drifts lower for the third straight day on Wednesday and slides to a one-week low against its American counterpart during the Asian session. Worries that US President Donald Trump's no-exemption tariffs on commodity imports could endanger Japan's economic stability, along with a generally positive tone around the equity markets, undermine the safe-haven JPY. Apart from this, the emergence of some US Dollar (USD) buying lifts the USD/JPY pair back closer to mid-153.00s in the last hour.
Federal Reserve (Fed) Chairman Jerome Powell said on Tuesday that the US central bank is in no rush to cut rates amid concerns that Trump's trade policies could fuel inflation, which, in turn, helps revive the USD demand. Furthermore, Trump's remarks temper hopes for a sharp narrowing of the US-Japan rate differential and contribute to driving flows away from the lower-yielding JPY. That said, the growing acceptance that the Bank of Japan (BoJ) will hike interest rates again could limit any further JPY losses.
Japanese Yen bears seize control amid concerns that Trump's tariffs could threaten Japan's economic stability
US President Donald Trump signed executive orders to impose 25% tariffs on steel and aluminum imports from March 12. Trump also signaled he would look at imposing additional tariffs on automobiles, pharmaceuticals, and computer chips, and promised broader reciprocal tariffs to match the levies other governments charge on US products.
The announcement raises the risk of a further escalation of global trade tensions and threatens to negatively affect the Japanese economy. This, in turn, is seen weighing heavily on the Japanese Yen and assists the USD/JPY pair to build on a one-week-old goodish recovery move from sub-151.00 levels, or a near two-month low touched last week.
Japan's Finance Minister, Katsunobu Kato said earlier this Wednesday that he will assess the impact of US tariffs on the Japanese economy and respond appropriately. Separately, Japan industry minister Yoji Muto requested the US to exclude Japan from steel and aluminum tariffs. This, however, does little to provide any respite to the JPY bulls.
Federal Reserve Chair Jerome Powell, in remarks before the Senate Banking Committee on Tuesday, struck a more hawkish tone and called the economy strong overall with a solid labor market. Powell added that inflation is closer to the 2% goal but still somewhat elevated and signaled that policymakers aren't in a rush to push interest rates lower.
Bank of Japan Governor Kazuo Ueda reiterated earlier today that the central bank will conduct monetary policy appropriately in order to achieve the 2% inflation target. Moreover, the recent wage growth data and the broadening inflationary pressures in the economy back the case for another BoJ rate hike move at the March policy meeting.
Traders now look forward to the release of the latest US consumer inflation figures, which, along with Powell's congressional testimony, will drive the US Dollar and the USD/JPY pair. The headline US Consumer Price Index is seen rising 2.9% YoY in January and the core CPI (excluding food and energy prices) coming in at a 3.1% YoY rate.
Source: Fxstreet
