The USD/JPY exchange rate was in a positive range, hovering around 152.05 early Monday during Asian trading hours. Following some initial selling pressure after U.S. President Donald Trump hinted at increasing tariffs on Chinese imports, the pair managed to regain some ground. Traders are likely to be paying close attention to the upcoming release of China’s trade balance data later today.
China has warned the U.S. about potential retaliation if Trump doesn’t backtrack on his proposal to impose 100% tariffs on imports from China. This situation raises some concerns regarding how the trade conflict might impact the U.S. economy in the future. Trump’s recent announcement on Friday about these steep tariffs adds to the tension.
As trade tensions escalate between the two largest economies and with the ongoing U.S. government shutdown, the dollar may struggle against the yen in the near term. Market participants will be looking for indicators on when the federal government will reopen and how this might influence Federal Reserve policy moving forward.
At the same time, worries about the Bank of Japan’s (BOJ) lack of interest rate hikes this year could put additional pressure on the yen, although the unexpected election of Sanae Takaichi as the ruling party leader might somewhat limit these losses. Her victory has sparked speculation about a more aggressive fiscal policy approach.
Still, one cannot dismiss the possibility of currency intervention. Japan’s Finance Minister, Katsunobu Kato, expressed concerns over excessive fluctuations in the foreign exchange market, indicating that the government is indeed worried.
