The Japanese yen climbed toward 147 per dollar on Tuesday, reversing losses from the previous session as persistent trade-related uncertainty boosted demand for safe-haven assets. Investors flocked to the yen, often seen as a safe bet during times of geopolitical tension or market volatility.
Japanese yen gains on tariff uncertainties
This surge in demand for the yen came amid ongoing concerns over global trade dynamics, with traders closely monitoring developments in U.S.-China relations and the broader economic impact of tariffs. In the latest developments, U.S. President Donald Trump announced that he had agreed to meet with Japanese officials to initiate trade talks, following a phone call with Prime Minister Shigeru Ishiba. The move was seen as a positive step toward easing trade tensions between the two countries, which had been escalating over issues such as trade imbalances and tariffs.
U.S. Treasury Secretary Scott Bessent confirmed he would lead the negotiations, emphasizing the strength of the U.S.-Japan alliance and outlining that discussions will cover a range of important issues, including tariffs, non-tariff barriers, currency policies, and government subsidies. This broadened scope for the talks raised hopes that both nations could reach a comprehensive trade agreement, potentially alleviating some of the market’s concerns about future economic disruptions. Despite signaling openness to talks, Trump denied reports that he was considering a delay to new reciprocal tariffs and warned that levies could remain in place indefinitely if Japan does not make satisfactory concessions. This ambiguous stance kept traders on edge, uncertain about the future trajectory of U.S.-Japan trade relations.
Japan current account surplus surged to a record high
On the domestic front, Japan’s current account surplus surged to a record high in February, driven by robust export growth and a decline in imports, which added further support to the yen. The surplus indicated that Japan's export-oriented economy remains strong, despite global trade tensions, and further underscored the country's resilience in maintaining a positive balance of payments. The increase in exports, particularly to the U.S. and other Asian markets, helped offset the impact of slowing demand for some of Japan's domestic products, such as electronics and machinery. The data also highlighted Japan’s favorable position in international trade, contributing to a stronger yen as investors viewed the country’s economic fundamentals as solid amidst a turbulent global backdrop.
This combination of favorable trade data and ongoing trade talks with the U.S. made the yen particularly attractive, with many market participants betting that the Japanese currency would continue to strengthen in the near term. However, uncertainty about the outcomes of the trade negotiations, along with potential volatility in global financial markets, kept traders cautious, aware that sudden changes in the geopolitical landscape could trigger sharp fluctuations in the yen's value.
