The Japanese yen strengthened to around 140.5 per dollar on Tuesday, reaching a seven-month high as heightened global trade tensions and growing skepticism toward US assets fueled safe-haven demand.
Yen supported by safe-haven demand
Investors flocked to traditional refuges like the yen amid escalating fears that the global economic environment could deteriorate further. Sentiment was weighed down by stalled US-China trade negotiations, with Beijing refusing to bow to President Trump's aggressive tariff threats and warning of retaliatory measures, adding to concerns of a prolonged standoff that could ripple across global supply chains.
Confidence in the US economic outlook also took a fresh blow after Trump threatened to remove Federal Reserve Chair Jerome Powell over delays in cutting interest rates. The unprecedented political pressure on the Fed sparked fears about the erosion of central bank independence, undermining the credibility of US monetary policy and prompting investors to seek shelter in safer currencies such as the yen and the Swiss franc.
Investor attention turns to BoJ
Domestically, investor attention is turning to next week’s Bank of Japan (BoJ) policy meeting. While the BoJ is widely expected to leave its benchmark short-term interest rate unchanged at 0.5%, analysts anticipate that policymakers may strike a more cautious tone. There is growing speculation that the central bank could lower its economic growth forecasts, reflecting the rising external threats to Japan’s export-dependent economy. In particular, US-led tariffs on goods like automobiles and electronics — critical sectors for Japan — are seen as significant downside risks to the country’s recovery prospects.
Additionally, while inflation in Japan has been edging higher, it remains well below the BoJ’s 2% target, reinforcing expectations that monetary policy will stay accommodative for an extended period. Some market participants are also watching for any signals that the BoJ might adjust its bond-buying operations or tweak its yield curve control policy to manage volatility if global market conditions worsen further.
The yen’s resilience highlights persistent nervousness among investors, with broader risk appetite likely to remain fragile as geopolitical tensions, concerns about central bank independence, and trade uncertainties continue to dominate the global narrative.
