Japanese Yen eases gains, USD/JPY rises to 156.00 zone
The Japanese Yen (JPY) gave up most of its gains against the US Dollar (USD) in today's trading session. This came after the White House announced that Colombia had agreed to take back illegal immigrants deported by the US. Additionally, a slight recovery from the greenback's more than one-month low also helped the USD/JPY pair return to near daily highs. However, a sharp decline in the Japanese Yen is unlikely as the Bank of Japan (BoJ) remains on track to continue raising interest rates.
In addition, uncertainty over US President Donald Trump’s trade policies is boosting demand for the Japanese yen, which is considered a safe-haven asset. At the same time, the possibility of the US Federal Reserve (Fed) cutting interest rates continues to restrain the strong USD rally. The recent narrowing of the yield gap between the US and Japan also contributes to supporting the Japanese yen, limiting further USD/JPY gains.
Japanese Yen Favored by Trade Worries, BoJ Policy
President Trump has imposed a 25% tariff on all goods imported from Colombia after the country refused to allow two US planes carrying migrants to land. He has also threatened to raise the tariff to 50% if Colombia does not comply further. This has raised concerns about a trade war, causing investors to turn to the Japanese yen as a safe haven.
Trump's advisers are also considering imposing 25% tariffs on Mexico and Canada, as early as February 1, according to a Wall Street Journal report. However, on Monday, the White House confirmed that Colombia had agreed to Trump's terms, which include taking back all illegal immigrants deported by the US.
Capital flows seeking safety and expectations of a Fed rate cut have pushed US bond yields down, narrowing the US-Japan yield spread, thereby further supporting the Japanese Yen.
The Bank of Japan has just raised interest rates by 0.25%, the largest increase since 2007, bringing the interest rate to 0.50% - the highest level since the 2008 financial crisis. The BoJ affirmed that it will continue to raise interest rates if the economic forecasts at the January meeting come true.
The BoJ believes that inflation in Japan will not fall below its 2% target anytime soon, even though economic growth may slow. However, rising wages are fueling a “virtuous cycle of growth.” Recent data also showed that Japan’s consumer inflation rose at its fastest pace in 16 months in December, suggesting that price pressures are spreading.
In addition, spring wage negotiations in Japan have begun, with business leaders and unions agreeing that wage increases need to be maintained.
Traders are now focused on US economic data due out today, including durable goods orders, consumer confidence and the Richmond manufacturing index.
According to Lao Dong's records at 12:00 on January 27, 2025, the JPY/USD exchange rate increased slightly by about 0.05%, to 156.040 USD/JPY, meaning 1 USD can be exchanged for about 156 JPY.
