Yen Weathers Dollar Onslaught, Retains Safe Haven Appeal Amidst Trade Tensions

The Japanese yen demonstrated resilience amidst a broad dollar rally on Monday, suggesting that investors continue to value its safe-haven status during market turbulence.

Despite President Trump's imposition of new tariffs, the yen initially gained 0.3% against the greenback, before settling 0.4% lower at 155.76 per dollar in mid-afternoon Tokyo trading. In contrast, the euro and major commodity currencies such as the Canadian, Australian, and New Zealand dollars, all declined over 1% against the US currency.

The yen's relative strength is notable as it remains the only Group-of-10 currency to appreciate against the dollar this year. This resilience is attributed to a combination of factors, including the Bank of Japan's ongoing monetary tightening cycle and elevated US Treasury yields, which tend to decline during periods of risk aversion, pushing the dollar-yen pair lower.

"The yen is rediscovering its safe haven credentials," said Gareth Berry, a strategist at Macquarie Bank in Singapore. "The Bank of Japan's hiking path and elevated US Treasury yields are key drivers."

The yen's recent strength contrasts with its depreciation over the past four years, which was largely driven by the wide interest rate gap between Japan and the US.

"The yen is a safe asset," said Akira Takei, a fixed-income manager at Asset Management One in Tokyo. "With the yen weakening, import prices have been high and it has been difficult for the BOJ to raise rates. With that factor gone, there is no need to rush rate hikes."

While the dollar retains a yield advantage against the yen, the yen is gaining ground against other safe havens such as the Swiss franc. The yen's carry, measured by three-month forward-implied yields, surpassed zero in December and has now reached that of the franc for the first time in over two years.

"The yen is so cheap and the franc is so strong that the yen is preferred," said Berry. "The BOJ's tightening mode also supports the yen's case, while the Swiss central bank is easing."