Dimming hopes for a BoJ rate hike and fiscal concerns could undermine the JPY, but verbal intervention might cap its losses.
The USD/JPY pair trades in positive territory near 152.05 during the early Asian session on Monday. The pair recovers some lost ground after facing some selling pressure in the previous session as US President Donald Trump threatened to hike tariffs against China. Traders will keep an eye on the release of China’s Trade Balance data, which is due later on Monday.
China warned the United States (US) that it will retaliate if Trump fails to back down on his threat to impose 100% tariffs on Chinese imports, raising fears of how the trade war will impact the US economy. These remarks came after Trump announced on Friday that he would impose new 100% tariffs on China’s exports to the US.
The escalating trade tensions between the world’s two largest economies, along with the ongoing US government shutdown, could weigh on the Greenback against the JPY in the near term. Traders will closely monitor signs of when the US federal government will reopen and release data that will shape Federal Reserve (Fed) policy.
On the other hand, concerns that the Bank of Japan (BoJ) may not hike interest rates this year after Sanae Takaichi’s surprise victory to lead the ruling party could weigh on the JPY and help limit the pair’s losses. Takaichi’s win fueled speculations about more expansionary fiscal policy.
However, some foreign exchange intervention cannot be ruled out after Japanese Finance Minister Katsunobu Kato said on Friday that the Japanese government was concerned about excessive volatility in the FX market.
