Trump's excessive use of tariffs boosts safe-haven demand, and the yen strengthens again.

With the Trump administration's rampant imposition of tariffs continuing to boost safe-haven demand, the Japanese yen has once again risen. As of the time of writing, the USD/JPY exchange rate has fallen to 145.35, the lowest level since October 2024; it briefly dropped to 144.75 earlier in the day. Trump's so-called "tit-for-tat tariffs" came into effect in the early hours of April 9th Eastern time. Following Trump's announcement of widespread tariff increases, economists are now focusing on whether the Bank of Japan can continue with monetary normalization for the remainder of the year. This is in stark contrast to earlier last week when some market participants expected the Bank of Japan to possibly raise rates as early as May 1st. According to overnight swap indexes, traders currently believe there is less than a one-third chance of the Bank of Japan raising rates this year, down from over 50% earlier last week. Bank of Japan Governor Kando Otomaru stated on Wednesday that he will take a wait-and-see approach to policy making, waiting for further clarity on the US tariff issue, while promising to continue to implement policies appropriately. He said, "Our stance is to carefully assess the remaining uncertainties regarding tariffs and monitor the economy, inflation, and financial markets in shaping our outlook to appropriately implement our policy." Kando Otomaru's comments indicate that the Bank of Japan is still watching the developments on tariffs before assessing potential impacts at home and abroad, as well as any necessary responses. This suggests that the Bank of Japan may delay the long-awaited policy normalization process. Analysts widely expect the Bank of Japan to keep rates unchanged at the April 30th to May 1st policy meeting, while lowering economic growth forecasts. Market observers point out that the Bank of Japan is facing a dilemma: tightening policy too quickly could choke off economic recovery, but responding too slowly could miss the window for policy normalization. Kando Otomaru's wait-and-see approach reflects the Bank of Japan's difficult balance between inflation targets and growth risks.