The Japanese Yen (JPY) continued to decline in the morning trading session on January 28, losing much of the gains made the previous day, when it had reached a multi-week high against the US Dollar (USD). The reason was due to concerns that US President Donald Trump's tax plans could increase inflationary pressures, causing US government bond yields to rise. This attracted capital flows out of the Yen - a low-yielding currency.
Meanwhile, the US dollar also rebounded strongly from its lowest level since December, pushing the USD/JPY pair to near 156.00. However, the possibility that the Bank of Japan (BoJ) may continue to raise interest rates has made investors more cautious about selling off the Yen. In addition, the possibility that the US Federal Reserve (Fed) will continue to ease monetary policy may also limit the US dollar's upside.
President Trump said he was about to impose new tariffs on pharmaceuticals, computer chips, aluminum and copper, and was considering other industries such as steel. Trump had previously ordered an emergency 25% tariff on imports from Colombia, but the decision was delayed after Colombia agreed to take back all illegal immigrants from the US.
In addition, US Treasury Secretary Scott Bessent is proposing a plan to increase import tariffs from 2.5% and increase them monthly. These plans have caused the yield on 10-year US government bonds to rise again, attracting investment into the US dollar and reducing demand for the yen.
Meanwhile, the BoJ stressed that it will continue to raise interest rates if economic forecasts are realized. In particular, Japanese businesses and labor unions have agreed to maintain wage increases this year, which gives the BoJ more reason to tighten monetary policy, thereby supporting the Yen.
The BoJ also announced the purchase of 200 billion yen in commercial paper to support the market, while Japanese Economy Minister Ryosei Akazawa said he would monitor the impact of the rate hike on the economy.
On Tuesday, investors will be watching a slew of U.S. economic reports, including durable goods orders, consumer confidence and manufacturing data. But the biggest focus will be on the Fed’s two-day policy meeting, which begins today. The outcome of this meeting will determine the direction of the U.S. dollar and have a major impact on the USD/JPY pair.
According to Lao Dong's records at 12:00 on January 27, 2025, the JPY/USD exchange rate increased by about 0.76 percentage points, to 156.653 USD/JPY, meaning 1 USD can be exchanged for about 156 JPY.
