Yen falls against dollar after Trump imposes tariffs

The Japanese yen fell past 155.5 per US dollar on Monday, marking its second consecutive decline as the dollar surged following US President Donald Trump’s imposition of sweeping tariffs on key trading partners, prompting traders to price in inflationary risks.

Yen falls against dollar after Trump imposes tariffs

The US introduced 25% tariffs on goods from Mexico and Canada, along with a 10% levy on imports from China, which led to retaliatory measures from the affected countries. These developments increased concerns about global trade disruptions and the broader economic impact, further strengthening the US dollar against major currencies, including the yen. Although Japan was not directly targeted by the tariffs, its economy—heavily reliant on exports and free trade—remains vulnerable to the ripple effects of these moves. The Japanese manufacturing and export sectors could be impacted by the knock-on effects of tariff escalation, such as reduced demand from key markets or rising costs for raw materials, which could further weigh on the yen.

Further rate cuts on the horizon

Additionally, a summary of opinions from the Bank of Japan’s January meeting revealed that officials discussed the possibility of further interest rate hikes in response to ongoing inflationary pressures and the continued weakness of the yen. With inflation remaining above the BOJ's target and the yen’s depreciation exacerbating import costs, the central bank is now contemplating tightening its policy stance. The BOJ raised its policy rate in January, and further hikes may be on the table if economic conditions and inflation trends align with expectations. However, such a shift in policy would be a significant departure from Japan's long-standing ultra-loose monetary policy, which could have broad implications for both domestic economic activity and international markets. As traders remain cautious, all eyes will be on any further developments related to global trade and the Bank of Japan's next steps, as they continue to assess how rising tariffs, inflationary pressures, and policy shifts will impact the yen’s trajectory in the months ahead.