USD/JPY recovers early losses as investors look beyond US SC’s ruling

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The USD/JPY pair recovers almost its entire early losses and trades marginally lower to near 154.85 during the European trading session on Monday.

USD/JPY bounces back to near 154.85 as the US Dollar claws of majority of its early losses.
Market experts believe that the White House has various measures to keep tariffs afloat.
Cooling Japan’s inflation has raised concerns over the BoJ’s rate hike prospects.

The USD/JPY pair recovers almost its entire early losses and trades marginally lower to near 154.85 during the European trading session on Monday. The pair bounces back as the US Dollar (USD) claws back its initial losses, driven by the United States (US) Supreme Court’s (SC) ruling against President Donald Trump’s tariff policy.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.13% lower to near 97.66. The USD Index has recovered after regaining ground near 97.40.

On Friday, the US SC called Trump’s tariff policy “illegal”, alleging that President Trump exceeded his authority to impose reciprocal duties by invoking the International Emergency Economic Powers Act (IEEPA). In response, President Donald Trump announced 15% global tariffs to keep trade deals afloat.

Market experts believe that uncertainty stemmed by SC’s verdict against Trump’s tariffs is mere short term as Trump’s fresh tariff announcement indicate that the White House has alternatives to keep the trade policy in place.

"The markets' initial reaction to the ruling may ultimately be short-lived, given that multiple avenues can be pursued to keep tariffs in place," analysts at Invesco said.

Meanwhile, the Japanese Yen (JPY) gives back its significant early gains as soft National Consumer Price Index (CPI) data for January has raised concerns over the Bank of Japan’s interest rate hike expectations.

On Friday, the data showed that the headline CPI rose at an annualized pace of 1.5%, slower than 2.1% in December. National CPI ex. Fresh Food decelerated to 2%, as expected, from the previous reading of 2.4%.

US Dollar FAQs

What is the US Dollar?

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.

How do the decisions of the Federal Reserve impact the US Dollar?

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.

What is Quantitative Easing and how does it influence the US Dollar?

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.

What is Quantitative Tightening and how does it influence the 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.