Yen under pressure from US tax policy
Last week, the Japanese Yen (JPY) fluctuated strongly due to pressure from US President Donald Trump's tariff policies.
The imposition of a 25% tax on steel and aluminum imports into the US, along with the possibility of expanding taxes on cars and other industries, has raised concerns about global trade tensions. This puts pressure on the Japanese economy, weakening the Yen.
In addition, the USD maintained its upward momentum as the US Federal Reserve (Fed) maintained a tough monetary policy stance. Fed Chairman Jerome Powell's statement that the central bank has no plans to cut interest rates has boosted the greenback, pushing the USD/JPY exchange rate above 153.00 on February 12.
BoJ may continue to raise interest rates, supporting the Yen
Despite pressure from US policies, the Yen still receives support from expectations that the Bank of Japan (BoJ) will continue to raise interest rates.
BoJ Governor Kazuo Ueda and other senior officials have signaled the possibility of another rate hike if inflation continues to exceed the 2% target.
Japan's real-estate wage data rose 0.6% in December and the producer price index (PPI) rose 4.2% year-on-year, further reinforcing the case that the BoJ could tighten monetary policy in the coming period. This helps the Yen somewhat limit its weakness.
US economic data affects the foreign exchange market
Last week, US economic data also greatly affected the fluctuations of the Yen. The January jobs report showed the US unemployment rate fell to 4%, but the number of new jobs reached only 143,000, down from the forecast of 170,000.
Meanwhile, the US consumer price index (CPI) increased by 0.5% in January, higher than expected, increasing the possibility of the Fed keeping interest rates unchanged for longer.
The yield on the 10-year US government bond increased sharply, increasing the interest rate gap between the US and Japan, benefiting the USD.
However, over the weekend, President Trump's decision to postpone the tax has helped the Yen recover slightly, pushing the USD/JPY exchange rate below 154.00.
Market prospects in the coming time
Investors continue to monitor the development of US-Japan trade tensions and the BoJ's policy decisions.
US inflation data, along with further statements from Fed Chairman Jerome Powell, will play an important role in determining the direction of the USD/JPY pair.
In the coming time, if the BoJ continues to raise interest rates and US tax policies negatively affect global trade, the Yen can recover significantly.
Conversely, if the Fed maintains a tight monetary policy and US bond yields continue to increase, the weakened pressure on the Yen will continue.
