How has the FX market responded to Trump’s latest tariff announcements?

What the desk is arguing

The desk argues that the FX market is reacting adversely to Trump's latest tariff announcements, amplifying existing uncertainties. The potential for further trade tensions is setting a bearish tone for risk-sensitive currencies, while the political landscape in Japan adds another layer of complexity to the yen's vulnerability.

Supporting this view, MUFG emphasizes that the interplay between geopolitical dynamics and monetary policy is crucial in shaping currency valuations. With Japan facing political uncertainties, this may detract from the yen's safe-haven appeal, leading to further depreciation against the dollar and other currencies. The implication is a challenging environment for the yen, especially if tariffs escalate and global sentiment shifts further towards risk aversion.

Where it sits in our coverage

Currently, our consensus target for USD/JPY stands at 1.075, firmly within a range of 1.04 to 1.12, suggesting a moderately bullish stance in light of current market conditions. This view aligns well with MUFG's analysis regarding the yen's weakness but diverges slightly from more conservative targets set by analysts in the space.

• JPMorgan has a target of 1.10 for Mar-26, reflecting a cautious bullish outlook on USD/JPY in the wake of these tariff considerations.
• Barclays aims for a higher target of 1.12, acknowledging the potential for further weakness in the yen driven by both domestic and international factors.
• Goldman Sachs has set a slightly lower target at 1.08, indicating they too expect continuing pressures on the yen due to geopolitical developments.

How other firms see it

Some firms resonate with our view, emphasizing a bearish outlook for the yen amidst Trump’s tariff announcements and Japan's political uncertainty. They underline the potential for escalating trade wars impacting risk sentiment across markets.

• Deutsche Bank is aligned, noting that the ongoing political uncertainties could lead to sustained weakness in the yen if efforts to stabilize domestically falter.
• Bank of America holds a contrary position, projecting a more optimistic view for the yen with a target of 1.04 and suggesting that tariffs may not fundamentally alter the yen's trajectory in the near term.