The Japanese Yen (JPY) kicks off the new week on a positive note as US President Donald Trump's sweeping reciprocal tariffs raise the risk of a global economic slowdown and continue to underpin traditional safe-haven assets. Meanwhile, concerns that harsher US reciprocal tariffs could negatively impact Japan's economy forced investors to scale back their bets that the Bank of Japan (BoJ) would raise the policy rate at a faster pace. This, in turn, acts as a headwind for the JPY and assists the USD/JPY pair to reverse an Asian session dip back closer to a six-month low – levels below the 145.00 psychological mark – touched on Friday.

However, signs of broadening inflation in Japan keep the door open for further BoJ interest rate hikes in 2025. Apart from this, persistent geopolitical tensions should limit any meaningful depreciating move for the JPY. The US Dollar (USD), on the other hand, struggles to capitalize on Friday's positive move amid bets for more aggressive policy easing by the Federal Reserve (Fed), fueled by concerns about a tariffs-driven US economic slowdown. This, along with a further steep decline in the US Treasury bond yields, should act as a tailwind for the lower-yielding JPY and cap any meaningful recovery move for the USD/JPY pair.

source: Fxstreet