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Japanese Yen Strengthens as Dollar Struggles Amid Trade Tensions

Japanese Yen Strengthens as Dollar Struggles Amid Trade Tensions

The Japanese yen extended its rally, pushing the USD/JPY pair down nearly 8% from its recent high earlier this year. On Tuesday, the pair dropped to a six-month low of ¥146.50 before bargain hunters stepped in, lifting it back above ¥148.00 in volatile trading.

The yen’s strength comes as investors move away from the U.S. dollar, which has faced increasing pressure from trade tensions and policy uncertainty under President Donald Trump’s administration. On Tuesday, Trump announced plans to double tariffs on Canadian aluminum and steel to 50% from 25%, further fueling concerns over global trade disruptions.

Japan’s economic resilience has also supported the yen’s gains. The latest GDP data showed a 0.6% expansion in Q4, slightly below analysts’ 0.7% forecast but still an improvement from the 0.3% growth in the previous quarter. This steady economic performance has helped boost investor confidence in the currency.

The yen has gained nearly 10% against the dollar since its multi-year low in July 2024, when the Bank of Japan (BOJ) resisted rate hikes and avoided currency intervention. However, a shift in BOJ policy helped reverse the yen’s fortunes, leading to its sustained strength against the dollar.

Looking ahead, traders are closely watching U.S. inflation data for February, set for release on Wednesday. A higher-than-expected inflation reading could affect Federal Reserve rate expectations and influence the USD/JPY pair’s movement in the coming days.

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