Japanese Yen Surges Following New U.S. Tariffs

Key Points:

• The Japanese Yen spiked to a multi-week high against the U.S. Dollar following President Trump’s new tariff announcement.

• Safe-haven flows and narrowing U.S.-Japan rate differentials fueled JPY strength.

• Divergent Fed-BoJ policy paths point to further downside potential for USD/JPY.

JPY Strengthens as Risk-Off Sentiment Explodes After Tariff Shock

The Japanese Yen (JPY) surged to its strongest level in over three weeks during Thursday’s Asian trading session as global markets digested the latest round of tariffs announced by U.S. President Donald Trump. Investors, once again rattled by trade war rhetoric, dumped risk assets and flocked to safe-haven plays , with the JPY topping the list.

Trump’s declaration of a baseline 10% tariff on all imported goods, with some countries (including Japan) facing additional levies of up to 24%, ignited a wave of global risk aversion. Concerns over the durability of global supply chains, economic growth, and trade relationships returned to the spotlight — triggering capital flight from equities into traditional havens like the Yen and U.S. Treasuries.

The flight to safety wasn’t just symbolic. Japan’s Nikkei 225, Hong Kong’s Hang Seng, and the Australian ASX 200 all posted significant losses, underscoring the immediate ripple effect of U.S. protectionist measures. As markets grappled with the consequences, the JPY firmed sharply across the board, especially versus the U.S. Dollar.

Technical Analysis: USD/JPY Pressures Multi-Month Support

The daily chart for USD/JPY shows a decisive break below the 148.30 support level, with the pair currently trading near 147.56, down over 1.10% intraday. This move confirms continued bearish pressure following repeated rejections at the 151.90–152.00 resistance zone.

A key trendline drawn from September 2024 lows has now been completely invalidated, reinforcing the downside structure. Moreover, the Relative Strength Index (RSI) has slipped further below 50, currently hovering around 37.85, indicating increasing downside momentum without yet reaching oversold territory.

If this downward trajectory holds, the next major support lies at the 146.52 zone — marked by multiple prior swing lows and now reinforced as the critical level to watch. A clean break below this could accelerate declines toward the 140.35 region — a strong psychological and technical base.

On the flip side, any recovery attempt will likely face immediate resistance at the broken 148.30 level, followed by the 151.93 pivot and the broader supply zone near 154.55. However, as long as the price remains below the broken trendline and fails to reclaim 148.30, rallies may be limited and viewed as selling opportunities.

This current structure highlights growing risk-off sentiment and validates safe-haven flows favoring the JPY amid escalating trade concerns and shifting monetary expectations.

Yields Drop, Interest Rate Gap Narrows - JPY Gets More Attractive

A core driver behind the USD/JPY slide was the sharp drop in U.S. Treasury yields. The benchmark 10-year yield dipped toward the 4.0% mark, hitting a fresh year-to-date low. This move not only signaled increased demand for safe government bonds but also narrowed the U.S.-Japan rate differential, a key metric for currency traders.

Historically, a wider interest rate gap between the U.S. and Japan tends to favor the USD. However, when that gap narrows — especially amid risk-off sentiment — the balance tips toward the JPY. This time was no different.

As traders began to price in at least three rate cuts from the Federal Reserve by the end of 2025, the yield advantage of the U.S. Dollar eroded quickly. Markets are now expecting the Fed to begin easing as early as June, despite recent upbeat U.S. employment data. This contrasts with the Bank of Japan’s relatively hawkish lean, supported by rising domestic inflation.

Divergent Policy Paths: Fed vs. BoJ

While recession fears grow in the U.S., fueled by both geopolitical tension and protectionist trade policy — Japan’s inflation data tells a different story. Tokyo’s consumer price index came in hotter than expected last Friday, reinforcing the BoJ’s case for potentially more tightening.

This divergence in central bank trajectories is critical for forex traders. The Fed is being pushed into a defensive posture, while the BoJ appears cautiously confident about its ability to lift rates further if necessary.

BoJ Governor Kazuo Ueda recently reiterated the need to remain vigilant about persistent inflation, particularly in the services sector. This subtle shift from Japan’s long-standing dovish stance is a key structural force supporting the JPY.

Market Outlook: JPY Momentum Has Macro Backing

This isn’t a one-off move. The JPY’s strength is underpinned by both short-term risk aversion and long-term policy divergence.

As of late March 2025, the U.S. 10-year Treasury yield declined by approximately 36 basis points since January, settling around 4.2% . In contrast, Japan's 10-year government bond yield has risen, reaching 1.44% in February 2025, marking its highest level since November 2009 . This shift has led to a narrowing of the yield spread between U.S. and Japanese bonds, enhancing the appeal of the JPY to investors seeking favorable returns.

Furthermore, a Goldman Sachs analysis from earlier this week raised the U.S. recession probability to 35% (up from 20%), citing the potential inflationary drag of new tariffs.

Their revised forecast includes:

• Inflation at 3.5% for 2025

• U.S. GDP at just 1%

• Unemployment reaching 4.5%

source: marketwatch,jpmorgan

That paints a clear picture, one where the Fed may need to ease, while the BoJ cautiously tightens. Forex traders should take note: the fundamentals and sentiment are aligning behind the JPY.

Final Thoughts: JPY Could Stay Strong — But Watch for Interventions

While all signs point toward continued JPY strength, traders must be cautious about potential verbal or direct intervention by Japanese authorities. The Ministry of Finance has a history of stepping in when the Yen strengthens too fast, particularly if it threatens Japan’s export competitiveness.

For now, though, the tide favors the Yen:

• Risk-off sentiment drives demand for safe-havens.
• Rate differentials are shrinking — the Fed may cut, the BoJ may hike.
• Technicals point to more downside in USD/JPY.
• Macro data continues to support JPY resilience.

Traders would do well to monitor both central bank signals and tariff-related developments closely in the coming days. The global economy may be in for a turbulent Q2, and the Yen is once again playing its historical rol, the eye of the financial storm.