The Japanese yen weakened toward 146 per dollar on Thursday, reaching a two-week low as improving global risk sentiment reduced investor appetite for traditional safe-haven currencies.
Japanese yen weakens as haven demand eases
The shift came after a U.S. federal court issued a landmark ruling declaring that former President Donald Trump had overstepped his legal authority in imposing sweeping reciprocal tariffs. The U.S. Court of International Trade found the measures unlawful and ordered them to be vacated and permanently blocked, delivering a significant setback to Trump’s protectionist economic agenda. Although the White House is expected to appeal the decision, markets reacted positively to what is seen as a potential pivot toward a more open and predictable trade environment.
The ruling contributed to a global "risk-on" mood, pushing investors into higher-yielding assets and away from defensive plays like the yen. The currency’s decline was further fueled by broader dollar strength, supported by hawkish undertones in the latest Federal Reserve meeting minutes, which highlighted the central bank’s cautious stance on rate cuts amid persistent inflation concerns.
On the domestic front, attention turned to monetary policy developments in Japan, where Bank of Japan (BoJ) Governor Kazuo Ueda expressed growing concern over the rise in super-long-term government bond yields. Ueda noted that higher yields on 20- and 30-year JGBs could spill over into shorter-dated maturities, potentially disrupting funding conditions and financial market stability. His comments underscore the BoJ’s heightened sensitivity to shifts in the yield curve as it gradually moves away from ultra-loose policy settings.
BoJ will proceed cautiously
While inflation in Japan remains above the BoJ’s 2% target, Ueda has reiterated that the central bank will proceed cautiously in tightening policy, especially given uncertainties surrounding domestic demand and wage growth. However, the growing divergence between Japanese interest rates and those in the U.S. and Europe continues to weigh on the yen, making it vulnerable to capital outflows.
Market participants are closely watching for signs of further policy normalization by the BoJ, though many expect any tightening steps to be slow and incremental. In the meantime, the yen is likely to remain under pressure as global investors prioritize yield and growth exposure over currency safety, especially if trade tensions continue to ease and risk appetite strengthens.
