February 04, 2025 at 04:29PM
The JPY has outperformed most G10 currencies amid tariff-driven FX volatility, benefiting from safe-haven demand. Historically, JPY weakness under Trump was more tied to Fed rate hikes than tariffs. However, JPY’s immunity to Trump tariffs may not be absolute.
Key Points:
JPY Remains Resilient to Trump’s Tariffs, But Risks Exist:
Past JPY weakness (Trump’s first term) was Fed-driven, not tariff-driven.
Japan’s trade surplus with the US is smaller than Canada & Switzerland’s, but still exists.
A direct tariff threat on Japanese exports would challenge JPY’s immunity.
Japan’s Diplomatic Efforts to Preempt Tariff Risks:
Japan is actively engaging with the Trump administration to avoid trade tensions.
Masayoshi Son (SoftBank) investing in Trump’s AI initiative (Star Gate AI) signals strategic alignment.
Japan is the second-largest foreign direct investor (FDI) in the US, behind Canada.
PM Shigeru Ishiba set to meet Trump on February 7, but his political fragility raises uncertainty about Japan’s negotiating power.
Fed Policy, Not Tariffs, Likely to Drive USD/JPY in 2025:
Unlike Trump’s first term, the Fed is now cutting rates, which supports JPY strength.
Credit Agricole sees 50bps of Fed cuts in 2025, slightly more than the 40bps currently priced in.
Upcoming US labor market and ISM data could be key for JPY’s trajectory.
Conclusion:
For now, JPY remains relatively immune to Trump’s tariffs, but this could change if Japan becomes a direct target. More crucially, Fed rate cuts—not trade policy—will be the primary driver for USD/JPY this year. Safe-haven demand keeps JPY resilient, but US economic data remains key for further moves.
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This article was written by Adam Button at www.forexlive.com.
