The Japanese yen weakened sharply to nearly 148 per dollar on Monday, hitting a one-month low as appetite for safe-haven assets diminished amid renewed optimism following a breakthrough in U.S.-China trade negotiations.
Yen yumbles as tensions between US and China ease
Over the weekend, the two economic superpowers agreed in Switzerland to substantially reduce tariffs, marking a major de-escalation in their protracted trade dispute. Under the preliminary accord, U.S. tariffs on Chinese goods will be slashed from 145% to 30%, while China will lower duties on U.S. imports from 125% to 10%. The deal not only lifted risk sentiment globally but also fueled a rally in equities and commodities, putting additional downward pressure on the yen, traditionally seen as a haven during periods of geopolitical or financial stress.
Meanwhile, U.S. Commerce Secretary Howard Lutnick tempered the optimism slightly by noting that the 10% baseline tariff on imports from other countries—including Japan and the EU—would likely "remain in place for the foreseeable future," suggesting that trade uncertainties still linger outside the U.S.-China corridor. Nevertheless, investors remain hopeful that the breakthrough may open the door for further progress on other trade fronts, with attention now turning to the ongoing U.S.-Japan negotiations. Tokyo is reportedly pushing for a bilateral deal by June, aiming to secure exemptions from certain U.S. trade measures and reduce barriers for Japanese exporters.
Japan economic fundamentals offered little support for the yen
On the domestic side, Japan's economic fundamentals offered little support for the yen, despite the country posting a current account surplus of JPY 3.45 trillion in March. While still robust, the figure marked a moderation from the record JPY 4.06 trillion surplus recorded in February, reflecting softer exports and higher energy imports. Analysts noted that although Japan’s surplus remains sizable, it has done little to counter the broader forces driving yen weakness, particularly as the Bank of Japan remains firmly committed to ultra-loose monetary policy in contrast to the U.S. Federal Reserve’s cautious tightening bias.
Looking ahead, markets will closely watch upcoming U.S. inflation data and Japanese GDP figures later this week, which could provide further clues on the relative strength of the two economies and influence expectations for monetary policy divergence. Traders are also mindful of possible currency market interventions, as Japanese officials in recent weeks reiterated that excessive yen depreciation could harm the economy by pushing up import costs, particularly for energy and food.
