In a notable shift on Thursday, the yen reached its highest level in over two months. This upward movement is largely driven by investors speculating that the Bank of Japan (BOJ) might increase interest rates later this year. Meanwhile, new tariff threats from U.S. President Donald Trump continue to unsettle markets.
The yuan saw a bit of a bump after President Trump mentioned the possibility of striking a new trade deal with China, coupled with his expectation of a visit from Chinese President Xi Jinping. However, he did not specify when this visit might occur.
The yen jumped more than 0.8%, peaking at 150.15 against the dollar. This upward trend extends from Wednesday’s gains.
On Thursday, BOJ Governor Kazuo Ueda met with Japanese Prime Minister Shigeru Ishiba. They exchanged views on the economy and financial markets, though they avoided discussing the recent increase in long-term interest rates.
“There isn’t a singular reason behind the yen’s boost,” said Moh Siong Sim, a currency strategist at the Bank of Singapore. “Ueda mentioned he didn’t bring up rising yields with Ishiba, which might have encouraged speculation. Investors could interpret the BOJ’s lack of concern as a signal that the yen is free to strengthen, possibly supporting rate hikes soon.”
Gradually, investors are positioning themselves for potential rate hikes from the BOJ, spurred by domestic data that seem to justify further tightening of monetary policy.
In China, the onshore yuan gained over 0.2%, reaching 7.2682 per dollar, and the offshore yuan followed suit, edging up by the same percentage to 7.2686.
The looming threat of tariffs from the Trump administration has kept the yuan under pressure in recent months. However, Trump’s latest comments about a potential trade pact offered some relief to investors, temporarily easing fears of escalating tensions between the U.S. and China, as noted by currency traders.
As a result, the dollar faced some pressure on Thursday. Recently, the U.S. currency has been in a holding pattern, primarily due to Trump’s lack of concrete tariff actions, although cautious market sentiment limited its losses.
Complicating the landscape, geopolitics took center stage as Trump referred to Ukrainian President Volodymyr Zelenskiy as a “dictator” during discussions aimed at resolving the Russia-Ukraine conflict.
The British pound hovered near a two-month high and edged up by 0.09% to reach $1.2597. Meanwhile, the euro crept up by 0.06% to $1.0428, after slipping the previous day. This comes amidst a divide among top European Central Bank policymakers regarding inflation risks and the economic growth implications of the bank’s policies.
Across a basket of currencies, the dollar fell by 0.16% to 107.01.
On Wednesday, Trump promised to roll out new tariffs in the coming month, with lumber and forest products added to a list that already includes imported cars, semiconductors, and pharmaceuticals.
“Since taking office about a month ago, Trump’s impact on financial markets through his tax policy declarations has been significant. It seems markets have adapted to his style and transactional policymaking approach,” noted Carol Kong, a currency strategist at Commonwealth Bank of Australia. “He frequently uses tariffs as a negotiation tactic, so his words might not always translate to actual policy changes.”
Turning to other currencies, the Australian dollar traded 0.28% higher at $0.6363, following a mixed employment report. While job growth exceeded expectations for the second consecutive month in January, the unemployment rate was slightly up.
Similarly, the New Zealand dollar increased by 0.26% to $0.5720. Reserve Bank of New Zealand Governor Adrian Orr stated on Thursday that another 50 basis point interest rate cut would only come in response to a significant economic shock, following the bank’s recent decision to cut at its latest meeting.
(Reporting by Rae Wee; Editing by Christopher Cushing and Sonali Paul)
