Yen Drops After Trump-Colombia Deal Erases Gains
TOKYO, Jan. 30 (Bloomberg) - The yen retreated after President Donald Trump agreed to hold off on potential tariffs and sanctions against Colombia, unwinding earlier gains that had made it the only G-10 currency to appreciate against the dollar on Monday.
Earlier in the day, the yen had risen as much as 0.5% to 155.29 per dollar on safe-haven demand. However, it reversed course and fell 0.1% to 156.20 as of 3:22 p.m. Tokyo time following the announcement of the deal.
Trump had previously threatened to impose retaliatory measures on Colombia for refusing entry to deportation flights. The deal alleviated those concerns, contributing to the yen's decline.
Despite the reversal, analysts believe the yen has potential for further appreciation. The Bank of Japan's recent interest rate hike and expected future tightening could narrow the yield differential between Japan and other major economies.
Hedge funds reduced bearish bets on the yen ahead of the BOJ's rate hike, providing support to the currency. Rabobank's Jane Foley anticipates that the BOJ's ongoing interest rate increases, albeit gradual, will bolster the yen by reducing its attractiveness for carry trades.
Foley maintains her forecast of the yen reaching 145 against the dollar over the next 12 months, despite the recent fluctuations following the BOJ's meeting.