• GBP/JPY hovers near a five-month high of 196.45, reached on Tuesday.
  • A Reuters poll suggested that the BoJ will not increase interest rates in 2025 amid uncertainty over US tariff policy.
  • The safe-haven JPY struggles due to easing US-China tariff tensions.

GBP/JPY remains subdued for the third consecutive day, trading around 195.60 during the early European hours on Wednesday. However, the currency cross maintains its position near a five-month high of 196.45, which was recorded on Tuesday, with hopes of further gains. The Japanese Yen (JPY) faces challenges following a Reuters poll, suggesting that the Bank of Japan (BoJ) will not raise another interest rate again this year due to uncertainty over US tariff policy.

Out of 60 economists who participated in the Reuters survey conducted between June 2-10, no one expected the BoJ to increase rates at its upcoming policy meeting due on June 16-17. While 30 out of 58 respondents expected borrowing costs to remain at 0.50% in 2025, a reversal from the May poll, when the same fraction expected rates at 0.75% by end-2025.

Additionally, the JPY may face challenges due to dampened safe-haven demand amid the cooling off of tariff tensions between the US and China. Traders await further developments in the US-China agreement as officials seek approval from their leaders before moving ahead with the implementation of the Geneva Consensus. US Commerce Secretary Howard Lutnick suggested that potential resolutions with China have been achieved. Meanwhile, China’s Vice Commerce Minister Li Chenggang noted that communication with the United States has been rational and candid.

Market sentiment improved following the reports suggesting that Washington is considering easing semiconductor restrictions and looking for accelerated rare-earth shipments. This boosted the hope of reduced supply-chain friction, supporting global trade sentiment.

Tariffs FAQs

Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.

Source: Fxstreet