USD/JPY slumps to near 144.30 as Yen’s safe-haven demand increases

USD/JPY declines to near 144.30 as uncertainty surrounding Trump’s tariff deadline has increased Yen’s safe-haven demand.
Trump confirms that he will not extend tariff deadline beyond July 9.
The US and Japan have still not closed a trade deal, while tariff deadline approaches.

Sagar Dua FXStreet

The USD/JPY pair falls over 0.4% to near 144.30 during European trading hours on Friday. The pair faces a sharp selling pressure as the safe-haven demand of the Japanese Yen (JPY) has increased significantly, with investors turning cautious over the deadline of United States (US) reciprocal tariffs on July 9.

Market experts struggle to evaluate the impact of tariffs on the global economic growth, prompting investors to stick to safe-haven assets, such as the Japanese Yen.

However, the US Dollar (USD) faces a sharp selling pressure, despite being a safe-haven asset, as economists expect tariffs to weigh on the US economic outlook. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to near 96.90.

Meanwhile, US President Donald Trump has confirmed that he will not extend the tariff deadline and will send letters, outlining additional duty rates, to those nations with whom a trade agreement has not been finalized.

Additionally, the approval of the Trump’s “Big Beautiful Bill” by House of Representatives has also diminished the USD’s safe-haven demand. Economists expect Trump’s signature tax bill to increase the already ballooning national debt by $3-3.5 trillion over the next decade. A scenario that will increase fiscal risks for the economy.

Meanwhile, investors seek fresh developments over trade negotiations between the US and Japan. The Japanese Yen would face selling pressure if Tokyo fails to strike a deal with Washington before the tariff deadline.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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