Yen Underperforms Major Peers on Trump Tariff Uncertainties

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Yen Underperforms Major Peers on Trump Tariff Uncertainties

foreign exchange :: 2025-02-12 :: source - bloomberg

By Mia Glass

Japanese Yen / Bloomberg

(Bloomberg) -- The yen is on track for its longest losing streak in more than a month amid heightened concerns Japan may be included in Donald Trump’s tariff plan.

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Japan’s currency dropped as much as 0.9% to 153.89 against the dollar on Wednesday, its weakest level in a week and lagging all major peers. That’s in contrast from last week when the currency had its fourth straight gain for the period as traders bet that the Bank of Japan will raise rates again and the yen showed haven appeal.

The yen slid as Trump announced that he plans to impose 25% tariffs on all US imports of steel and aluminum. The Japanese government asked Trump on Wednesday to exempt the nation’s companies from his fresh tariffs, Trade Minister Yoji Muto told reporters.

“Yen underperformance is likely due to reciprocal tariff uncertainty,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. in Singapore. “There is a genuine risk that Japan may be hit and this can complicate the near term outlook for yen.”

READ: Japan Asks for Exemption From US Steel and Aluminum Tariffs

Even after the latest downleg, the yen remains the best performer among Group-of-10 currencies against the dollar this year. But any further weakness may draw the attention of Japanese authorities who have in the past warned against excessive movements in the currency markets. A weaker yen may also push the BOJ to hike rates sooner rather than later, although Governor Kazuo Ueda said on Wednesday that he’s closely watching US economic policy and its impacts.

“All eyes are on how Tokyo maneuvers through the looming trade turbulence — and whether BOJ policymakers will be forced to intervene” if the yen weakens further from here, Stephen Innes, managing partner at SPI Asset Management, wrote in a note.

The Japanese currency has come under pressure recently during Tokyo sessions, which according to traders is partially linked to Japanese retail investors’ hunger for overseas equities. It also reflects unwinds of long-yen exposure versus major peers by offshore accounts, trimming bets fueled on the back of a hawkish BOJ, the traders said, who asked not to be identified because they aren’t authorized to speak publicly.

Options sentiment as depicted by so-called risk reversals is least bullish the Japanese currency versus the dollar in two weeks.

Japan’s Love of Foreign Stocks Risks Pushing the Yen Even Lower

Overnight index swaps are pricing in a 78% chance of a BOJ rate hike by July and have factored in certainty by October, a timeline pushed back by a month since Friday. Ueda said that the size of interest rate hikes will depend on the economy, inflation and financial conditions at the time.

Federal Reserve Chair Jerome Powell also said on Tuesday that the central bank doesn’t need to rush to adjust interest rates, adding to concerns that the interest rate differentials between the US and Japan will remain wide.

“Powell’s comments were somewhat hawkish,” said Yuya Yokota, an FX trader at Mitsubishi UFJ Trust & Banking Corp. in New York. “There isn’t enough material to further price in BOJ rate hikes, and the yen is being sold in reaction to its recent strength as well.”

What Bloomberg strategists say...

The sudden bout of yen weakness looks like traders are catching up to the dangers that Trump’s disruptive trade policies may end up being at least as negative for Japan’s currency. The other issue at play may be concerns that the yen gained too far, too fast heading into a US inflation data release that has the potential to push rates traders to further downgrade their bets on a second Fed rate cut this year.

— Garfield Reynolds, Markets Live strategist. Read more on MLIV.

Traders will be paying close attention to US inflation data out later, which is expected to show consumer prices, excluding food and energy, rose 3.1% in January from a year ago. Any further receding expectations for rate cuts by the Fed may sustain pressure on the yen.

READ: Fed’s Williams Says Inflation on Track to 2% But Will Take Time

“The real question is can you really afford to be a yen bull right now,” said Mingze Wu, currency trader at Stonex Financial Pte in Singapore. “Yen longs have been very popular across everything else recently — but after Powell’s comments and with CPI coming up, how can you not be worried?”

--With assistance from Michael G. Wilson, Masahiro Hidaka, Ruth Carson, Matthew Burgess, Vassilis Karamanis and David Watkins.

(Updates with prices, chart and comments)