U.S. President Donald Trump alleged Monday that Japan and China are guiding their currencies lower, hinting that he could impose fresh tariffs on Tokyo if this is not halted.
“The way you solve it very easily is with tariffs,” he told a news conference at the White House, hinting at new tariffs on imports from Japan.
“I’ve called (Chinese) President Xi (Jinping), I’ve called the leaders of Japan to say: ‘You can’t continue to reduce and break down your currency. You can’t do it, because it’s unfair to us,'” Trump said. “It doesn’t have to be tariffs. But tariffs are easy, they’re fast, they’re efficient, and they bring fairness.”
Trump said that if Japan and China try to weaken their currencies and put the United States “at a very unfair disadvantage, all I have to do is say, ‘Howard, we’re going to have to raise the tariffs a little bit,'” said Trump, referring to Commerce Secretary Howard Lutnick.
In Tokyo on Tuesday, Finance Minister Katsunobu Kato rebutted Trump’s claim that Japan was trying to weaken its currency.
“As we’ve said, Japan is not guiding the yen lower,” Kato told a news conference.
Since autumn 2022, the Japanese government and the Bank of Japan have been trying to correct the yen’s weakness against the dollar through currency market interventions. Kato said he hopes the U.S. side would understand Japan’s argument from the currency intervention records.
Kato added that he and U.S. Treasury Secretary Scott Bessent confirmed basic views on the foreign exchange market in a videoconference in late January.
The remarks by Trump prompted yen purchases against the dollar in New York and then in Tokyo, where the greenback stood at ¥148.91-93 at 11 a.m. Tuesday, down from ¥150.18-18 at 5 p.m. the previous day.
But Japan and China are not the only ones facing challenges from Trump over their currencies. The outlook for emerging Asian currencies is worsening again after he announced new tariffs on Beijing, curbing optimism that his threats were mainly bargaining ploys.
Regional currencies have tumbled over the past week, with the Thai baht and South Korean won both sliding about 2%, as rising fears over a global trade war sapped risk appetite. Asian currencies have also unwound part of their January rally as a number of central banks in the region cut interest rates to support growth.
There are “significant risks” to the outlook for Asia currencies, “especially if the U.S. administration adopts a more aggressive tariff policy against Asia,” said Eric Lo, a fund manager for pan-Asian bonds at Manulife Investment Management in Hong Kong. “Additionally, we believe that the preference of Asian central banks to cut policy rates this year could limit the appreciation of Asian currencies.”
A Bloomberg index of emerging Asian currencies has dropped about 0.8% over the past week as Trump announced an additional 10% tax on Chinese imports, along with 25% tariffs on Mexico and Canada. That decline accelerated a retreat in the gauge from a two-month high set on Feb. 24.
On Monday, Trump said he would plow ahead with the new levies on Canada and Mexico starting Tuesday and later the White House said he also signed an order on the China tariffs that will take effect shortly after midnight in Washington. The directive said Beijing had “not taken adequate steps” to address the flow of illicit fentanyl into the United States.
The renewed tariff fears have added to the headwinds Asian currencies face. Central banks in South Korea and Thailand are among those that have recently cut rates to bolster growth, putting them at odds with their global peers in countries such as Brazil. Asian currencies have also been dragged lower as the dollar rallied amid an increase in demand for the greenback following Trump’s election victory.
“It’s hard to get excited about FX performance in the region,” said Rob Drijkoningen, co-head of the emerging markets debt team at Neuberger Berman Asset Management in The Hague. Among the negatives are the fact that yields are relatively low across the region, and also the U.S. tariff pressures on China even though they are unlikely to rise as high as the original threat of 60%, he said.
Drijkoningen said his fund was buying assets of countries that have a lower correlation with the U.S. to help reduce the volatility, such as Brazil and Sri Lanka.
Emerging Asian currencies are set to see increasing volatility this year due to concerns over rising global trade frictions, though they could get some relief if the U.S. economy finally starts to show signs of a slowdown, according to Abrdn.
“Asian currencies could only remain strong against the dollar if the U.S. growth numbers remain weaker-than-expected, which would lead to a more dovish Federal Reserve and potentially, a less mercantilist U.S. state,” said Edmund Goh, investment director of fixed income for Asia at Abrdn in Singapore.
Goh said he is careful about positioning “too aggressively” in Asian currencies at the moment, and currently prefers local-currency bonds from countries such as Indonesia and India.
