Credit score Agricole: Assessing JPY’s immunity to Trump’s tariffs

The JPY has outperformed most G10 currencies amid tariff-driven FX volatility, benefiting from safe-haven demand. Traditionally, JPY weak spot below Trump was extra tied to Fed charge hikes than tariffs. Nevertheless, JPY’s immunity to Trump tariffs is probably not absolute.

Key Factors:

1. JPY Stays Resilient to Trump’s Tariffs, However Dangers Exist:

   • Previous JPY weak spot (Trump’s first time period) was Fed-driven, not tariff-driven.
   • Japan’s commerce surplus with the US is smaller than Canada & Switzerland’s, however nonetheless exists.
   • A direct tariff risk on Japanese exports would problem JPY’s immunity.

2. Japan’s Diplomatic Efforts to Preempt Tariff Dangers:

   • Japan is actively partaking with the Trump administration to keep away from commerce tensions.
   • Masayoshi Son (SoftBank) investing in Trump’s AI initiative (Star Gate AI) indicators strategic alignment.
   • Japan is the second-largest international direct investor (FDI) within the US, behind Canada.
   • PM Shigeru Ishiba set to fulfill Trump on February 7, however his political fragility raises uncertainty about Japan’s negotiating energy.

3. Fed Coverage, Not Tariffs, Prone to Drive USD/JPY in 2025:

   • In contrast to Trump’s first time period, the Fed is now chopping charges, which helps JPY energy.
   • Credit score Agricole sees 50bps of Fed cuts in 2025, barely greater than the 40bps at the moment priced in.
   • Upcoming US labor market and ISM information may very well be key for JPY’s trajectory.

Conclusion:

For now, JPY stays comparatively proof against Trump’s tariffs, however this might change if Japan turns into a direct goal. Extra crucially, Fed charge cuts—not commerce coverage—would be the major driver for USD/JPY this 12 months. Secure-haven demand retains JPY resilient, however US financial information stays key for additional strikes.

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This text was written by Adam Button at www.ubaidahsan.com.



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