USD/JPY falls back to near 145.00 as USD gives up gains
- USD/JPY gives back initial gains and falls to near 145.00 amid uncertainty over Trump’s tariff policy.
- The US court accused Trump of exceeding the President’s authority in facilitating his tariff agenda.
- Japan’s Akazawa is set to visit Washington for the fourth round of trade talks.
The USD/JPY pair retreats to near 144.90 during European trading hours on Thursday after facing stiff resistance above 146.00. The pair gives up early gains as the US Dollar falls back after investors reassessed the consequences of the United States (US) court’s decision to strike down the tariff policy by President Donald Trump. However, the White House has appealed the decision.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, surrenders early gains and flattens around 99.90.
On Wednesday, the US Court of International Trade accused Trump of overstepping his authority to fulfill his tariff agenda. The court stated that Trump has violated the constitutional limit by exercising national emergency under the International Emergency Economic Powers Act (IEEPA) to fix trade imbalances. According to a report from the Associated Press (AP), longstanding trade deficits do not constitute a sudden emergency.
The event is expected to dampen the business confidence as owners started developing procurement and production strategies, assuming that tariffs will be persistent. Trump’s intention to impose tariffs on his trading partners also aimed to boost manufacturing capacities domestically.
Meanwhile, investors also look cues about whether the White House will keep negotiating trade deals with its trading partners.
Japan’s Trade Negotiator and Economy Minister Ryosei Akazawa stated earlier in the day that conduct ministerial talks on trade expansion and economic security cooperation, and will visit Washington for the fourth round of trade talks despite being “aware of the reports about the ruling”, Bloomberg reported. Akazawa refused to comment on the impact of the US court striking down Trump’s tariffs on “Japan-US negotiations” and said, “We [administration] intend to thoroughly examine the content of the ruling and its implications and respond appropriately.”
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.