The Japanese Yen (JPY) jumps to a fresh seven-month high against a broadly weaker US Dollar (USD), dragging the USD/JPY pair closer to the 140.00 psychological mark during the Asian session on Tuesday. Fears that US President Donald Trump's tariffs and the escalating US-China trade war would dent global economic growth continue to boost demand for traditional safe-haven assets, including the JPY.
Apart from this, the growing acceptance that the Bank of Japan (BoJ) will continue raising interest rates in 2025 turns out to be another factor underpinning the JPY. The USD, on the other hand, languishes near its lowest level since April 2022 amid the weakening investors' confidence in the US economy and doubts over the Federal Reserve's (Fed) independence. This further contributes to the USD/JPY pair's fall.
Following the first Japan-US negotiations last week, Japan's Economic Revitalization Minister Ryosei Akazawa said that any agreement would likely take some time as it's difficult to say how long it will take to bridge the gap between the two sides.
Akazawa added that agriculture will not be compromised to protect the auto industry in US tariff talks. Meanwhile, Japan's Finance Minister Katsunobu Kato will meet US Treasury Secretary Scott Bessent later this week to discuss currency rates.
Investors remained on edge amid the uncertainty over US President Donald Trump's steep tariffs and the effect of the erratic trade war on the global economy. Moreover, Trump's fresh attack on Federal Reserve Chair Jerome Powell rattled markets.
Trump accused Powell of not moving fast enough to bring down interest rates. Powell last week said that the central bank was not inclined to cut interest rates in the near future amid the possible inflationary pressures stemming from the new tariffs.
Meanwhile, White House economic adviser Kevin Hassett has suggested that Trump and his team are studying if they could fire Powell. This raises doubts over the independence of the central bank and keeps the US Dollar bulls on the defensive.
The Bank of Japan is reportedly planning to signal next week that there is almost no need to change its basic stance on raising interest rates as the potential impact of increased US tariffs will not disrupt the ongoing cycle of wage growth and inflation.
Source; fxstreet
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