Yen Gains as Haven Amid Trump Tariff Concerns
The Japanese yen emerged as the only G-10 currency appreciating against the dollar on Monday. Investors sought the safe-haven asset amid concerns that President Trump's tariffs and sanctions on Colombia could trigger broader trade tensions and economic risks.
The yen strengthened by up to 0.5% to 155.29 per dollar in Asian morning trading, despite the US currency's gains against most other major currencies after Trump's social media remarks. The yen had previously gained 0.8% on Friday after the Bank of Japan (BOJ) hiked its policy rate to its highest level since 2008.
"After the Trump headlines, there's been a slight risk-off trend, so it's possible the yen is being bought from that," said Jin Moteki, currency strategist at Nomura.
However, Moteki also noted that investors may be avoiding the Swiss franc, another traditional haven asset, due to concerns about tariffs on Europe and the Swiss central bank's reluctance to rule out negative rates.
While Trump's tariff threat against Colombia contributed to the yen's rise, Japan's financial exposure to the South American nation is limited. According to the latest IMF data, Japan's portfolio investment in Colombia stood at only $575 million at the end of 2023.
Some analysts attribute the yen's strength to the BOJ's recent rate hike, which has narrowed the yield gap between Japan and other major economies. Hedge funds reduced their bearish bets on the yen ahead of the rate increase, providing additional support.
"The expectation that the BOJ is likely to continue hiking interest rates, albeit at a moderate pace, should weaken the JPY's position as a funding currency," said Jane Foley, head of G-10 FX strategy at Rabobank.
Despite recent fluctuations, Foley maintains her view that the yen will reach 145 against the dollar over the next 12 months.