Japanese yen rallies as financial markets slide

The Japanese yen continues to gain ground against the US dollar. In the European session, USD/JPY is trading at 146.05, down 0.58% on the day. On Friday, the yen improved to 14.5.54, its strongest level since Sep. 2024.

Japan's nominal wages rose 3.1% in February, in line with expectations and about the 1.8% gain in January. However, adjusted for inflation, real wages dropped in February for a second straight month, with a 1.2% decline. This follows a revised 2.8% decline in January as higher inflation continues to eat away at consumer purchasing power.

The Bank of Japan is widely expected to continue raising interest rates as it normalizes monetary policy. However, the latest round of US tariffs have muddied the economic landscape. The BoJ could decide to hold rates at its May 1 meeting in order to better assess the impact of the tariffs on Japan. The US has imposed a 25% tariff on auto imports as well as a reciprocal 24% tariff on all Japanese goods. A global trade war would be disastrous for Japan's export-dependent economy.

US nonfarm payrolls stronger than expected

US nonfarm payrolls surprised on the upside with a gain of 228 thousand, up from a revised 117 thousand in February and above the market estimate of 135 thousand. This was the strongest nonfarm payroll reading in three months.

The positive employment report was overshadowed by the latest round of US tariffs which have sent the financial markets tumbling lower. There are increasing fears that the US tariffs and expected counter-tariffs could upend the US economy and tip it into a recession.