Yen Rises as Haven Amid Trump Tariff Concerns

The Japanese yen (JPY) emerged as the sole Group-of-10 currency gaining ground against the US dollar on Monday, fueled by safe-haven demand. Investors turned to JPY amid concerns over President Donald Trump's proposed tariffs and sanctions on Colombia, raising fears of broader trade tensions and economic risks.

During the Asian trading session, JPY appreciated up to 0.5% against USD, reaching 155.29, despite the US currency's strength against most major currencies following Trump's social media statements. On Friday, JPY had advanced as much as 0.8% after the Bank of Japan (BOJ) raised its policy rate to its highest level since 2008, though it retreated shortly after.

"There's been a slight risk-off trend after the headlines on Trump, so it's possible the yen is being bought from that," said Jin Moteki, currency strategist at Nomura.

Investors may be cautious about the Swiss franc, another traditional haven asset, due to concerns about tariffs on Europe and the Swiss central bank's refusal to rule out negative rates, Moteki added.

While Trump's tariff threat against Colombia contributed to JPY's rise, Japan's financial exposure to the South American nation is limited. According to the International Monetary Fund, Japan's outstanding portfolio investment in Colombia stood at just $575 million at the end of 2023. Moreover, data from the Financial Futures Association of Japan shows that the Colombian peso is not among the top 63 currencies traded by retail margin traders last month.

Some analysts believe that JPY is still reacting to the BOJ's latest rate hike, narrowing the yield differential between Japan and other major economies. Hedge funds had reduced their bearish bets on JPY before last week's rate increase, providing support to the currency.

"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, in a note.

Despite the fluctuations following the BOJ meeting, Foley maintains her forecast for JPY to reach 145 against USD in 12 months.