The Japanese yen strengthens against the trend, traders bet that Trump's first wave of tariff offensive "will not cause a stir".

14:58 21/01/2025

The Japanese Yen is the only currency in the Group of Ten (G10) that is strengthening against the US Dollar. This is because traders are betting that the first wave of tariffs imposed by the new US President Trump will not deter the Bank of Japan from raising interest rates this Friday.

On Tuesday, the Yen was the only currency in the Group of 10 (G10) that appreciated against the US Dollar, as traders bet that the first wave of tariffs by the new US President Trump would not stop the Bank of Japan from raising interest rates this Friday. On January 20th local time, Trump announced that starting from February 1st, goods imported from Canada and Mexico would be subject to a 25% tariff. This news caused the US Dollar to rise against other currencies, but the Yen still rose by 0.5% against the Dollar, reaching 154.78 Yen to 1 Dollar, the highest level since December 19th of last year. At the time of writing, the exchange rate was 155.35 Yen to 1 Dollar. The strength of the Yen reflects the market's expectation of a possible interest rate hike by the Bank of Japan at this week's policy meeting. Overnight index swaps indicate a 92% likelihood of a rate hike by the Bank of Japan this week. Sources revealed earlier this month that BOJ officials believe there is a high likelihood of a rate hike unless Trump's presidency brings too many unexpected events. Chief Investment Strategist at Oversea-Chinese Banking Corporation Charu Chanana stated: "The volatility triggered by Trump's speech is not worrisome, and this has allowed the Yen to absorb the increase in bets on a rate hike by the Bank of Japan." BOJ Deputy Governor Noriaki Hirose clearly stated in a speech to Yokohama business leaders last Tuesday that the bank's policy committee would discuss the possibility of a rate hike this week. BOJ Governor Haruhiko Kuroda indicated last Wednesday at the meeting that they would consider a rate hike and expressed confidence in wage increases, reinforcing market expectations of a rate hike. At the same time, a survey released last week showed that about 74% of 53 interviewed economists predicted that the BOJ would hike rates at the end of this week's meeting, up from 52% in the previous survey.

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The Federal Reserve's Daly warns of vulnerability in the labor market, says it may be necessary to cut interest rates one to two more times this year.

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