USD/JPY fell to nearly 154.00 in the North American session on Monday. The asset weakens as the Japanese yen (JPY) outperforms its major peers, as investors rush to the safe-haven fleet amid a sharp sell-off in US technology stocks.
U.S. tech stocks fell after analysts predicted that DeepSeek’s artificial intelligence (AI) model in China works on par with leading chatbots like Open AI at an affordable cost. Apart from the Japanese yen, the Swiss franc (CHF) is also performing strongly, being a safe asset.
The yen is also trading strongly on the back of the decision to raise interest rates by the Bank of Japan (BoJ). The central bank raised borrowing rates by 25 basis points (BPS) to 0.5% on Friday amid confidence that sustained wage growth would keep inflationary pressures above the required rate of 2%. The Bank of Japan declined to commit to a predetermined restrictive policy path but said it would raise interest rates further if the economy continues to perform in line with its forecast.
Early on Monday, the US dollar also performed strongly under several favorable winds such as US President Donald Trump’s threat to impose 25% tariffs on Colombia for refusing to accept military flights carrying undocumented people from their country and uncertainty ahead of the Federal Reserve’s monetary policy meeting on January 28-29, but gave up gains altogether and resumed its downward journey towards a seven-week low.
Trump later backtracked on his proposal to impose tariffs on Colombia as the South American country accepted his terms, reducing the safe-haven value of the U.S. dollar. On the monetary policy front, the acceleration of the Fed’s dovish bets also weighed on the US dollar.
Australian Dollar Falls against Yen on Economic Anxiety
The AUD/JPY pair attracts some sellers to around 98.10 during Asian trading hours on Monday. The Japanese yen (JPY) rises amid demand for safe-haven flows. Traders will monitor the inflation data for the Australian Consumer Price Index (CPI) for the fourth quarter, set to be released later on Wednesday.
U.S. President Donald Trump on Sunday imposed sweeping retaliatory measures on Colombia, including tariffs and sanctions, after the South American country refused to allow two military planes carrying deported migrants to land. However, the White House said Monday that Columbia had agreed to accept undocumented people returning from the United States. Uncertainty surrounding the impact of U.S. President Donald Trump’s trade and immigration policies could boost the Japanese yen, a traditional safe-haven currency, and create headwinds for the pair.
China’s factory activity unexpectedly contracted in January, reflecting the growth seen in the previous three months. This, in turn, exerts some selling pressure on the Australian dollar on behalf of China (AUD) as China’s economic performance significantly affects the Australian economy. Zichuan Huang, China economist at Capital Economics, said in a note: “Disappointing PMI data underscores the difficulty policymakers face in achieving a recovery. Sustainable in growth”
Attention will turn to Australia’s fourth-quarter CPI data on Wednesday. In the event of a weaker-than-expected outcome, this could raise bets on a rate cut by the Reserve Bank of Australia (RBA) in February and further undermine the Australian dollar.
Traders now expect the Fed to cut rates by 50 basis points this year, but are widely expected to keep interest rates steady in the 4.25%-4.50% range on Wednesday.
USD/JPY pair fell , Bank of Japan rate hike
The Bank of Japan yesterday raised its key interest rate to a 17-year high and took a more optimistic view on the strength of inflation, fueling expectations of further rate hikes and support for the yen.
Bank of Japan Governor Kazuo Ueda and his board members raised the overnight interest rate by 0.25 percentage points to 0.5 percent at the end of a two-day meeting, the central bank said in a statement.
The decision to wait until this month for a price hike seems to be related to the release of updated forecasts and the need to monitor the initial reaction to US President Donald Trump’s inauguration.
In its statement, the bank pointed to the relative stability of global financial markets at the moment as a positive factor, an indication that it was monitoring the response to the early days of the new US administration.
The yen rose 0.7% against the U.S. dollar to briefly reach 155.01 yen in the early afternoon in Tokyo, compared with 155.96 yen just before the decision.
Wei Khun Chung, chief market strategist for Asia Pacific at BNY in Hong Kong, said: “The rate hike by the Bank of Japan is supporting the yen and is likely to strengthen further from here.” “The relatively hawkish statement points to further rate hikes, which could come in May once wage pressures are confirmed.”
Ueda had widely expected to raise interest rates for the third time in less than a year after he and his deputy hinted last week that they were preparing for a move.
This stands in stark contrast to July last year, when the Bank of Japan’s previous interest rate hike surprised many investors and contributed to the global market crash and the largest ever-larger daily decline in the Nikkei 225.
