The Japanese yen strengthened past 146 per dollar on Monday, marching toward six-month highs as market turmoil triggered by an escalating global trade war intensified, boosting safe-haven demand for the currency.
Japanese yen rallies on safe-haven bid
The yen’s appreciation comes amid rising concerns about the broader economic impact of President Trump’s unexpectedly high reciprocal tariffs, which prompted swift retaliatory measures from major economies such as China and the European Union. This escalation has fueled fears of a global recession, sparking a sharp selloff in equities and commodities, as investors rushed to secure their capital in traditionally safe assets like the yen, Swiss franc, and government bonds.
The yen’s strength reflects its status as a safe-haven currency, with investors seeking protection from the uncertainty brought on by escalating trade tensions and potential disruptions in global supply chains. This demand for the yen has been further amplified by the broader market volatility, as traders look to hedge against risks associated with a possible global economic slowdown. The yen’s rise has also been supported by Japan’s relatively low-interest-rate environment, which, in contrast to rising rates elsewhere, continues to make the yen an attractive currency for safe-haven investors.
Internal factors
Domestically, Japan has seen accelerated nominal wage growth in February 2025, providing a positive signal for the economy, which faces mounting challenges due to global trade uncertainties. The increase in wages is seen as a bright spot, signaling that domestic consumption could support economic activity even as external factors weigh on the economy. The wage growth suggests that households may have more purchasing power, which could help stabilize demand in the face of global economic headwinds. However, while wage increases offer optimism, Japan’s export-dependent economy remains vulnerable to ongoing trade tensions, particularly as key trading partners grapple with their own economic challenges.
BoJ may raise rates further
On the monetary policy front, the Bank of Japan (BOJ) is expected to continue raising interest rates in 2025, having already implemented a series of hikes since ending its policy of negative interest rates in 2024. The BOJ’s decision to gradually tighten monetary policy reflects its confidence in Japan’s economic recovery and its efforts to address rising inflation. However, the central bank faces significant challenges, as uncertainties surrounding global trade and domestic economic conditions complicate its policy outlook. The ongoing trade conflict could dampen business sentiment and affect Japan’s exports, while higher rates could increase the burden on debt-laden households and businesses.
As a result, the outlook for the Japanese economy remains uncertain, with global trade dynamics continuing to play a crucial role in shaping growth prospects. Investors will be closely monitoring both the BOJ’s policy moves and the developments in the trade war, as these factors will have a significant impact on the yen’s trajectory and Japan’s economic performance in the coming months. While the yen’s safe-haven appeal is expected to persist amid ongoing market turmoil, Japan will need to balance its internal economic growth with the external risks posed by the evolving global trade landscape.
