In the early hours of April 3rd, Trump officially announced a 10% "baseline tariff" on all countries, with higher "reciprocal tariffs" on countries with the largest trade deficits with the United States. After this tariff policy is implemented, U.S. tariff rates on all imported goods will rise to about 22%, far exceeding the 2.5% as of February 2024. This measure is more severe than the market expected, sparking concerns about rising U.S. inflation, economic slowdown, and the deterioration of global trade conditions.
With the implementation of the tariff policy, funds poured into safe-haven assets, with gold prices hitting a historic high of $3167. Meanwhile, the U.S. 10-year Treasury yield further fell to 4%, a new low in five and a half months since October 17, 2024. At the same time, the USD/JPY also broke through several key levels, dropping to 147.1, just a step away from the previous low of 146.5. This suggests that if the tariff effects trigger a chain reaction, it may prompt governments to raise import tariffs to protect critical domestic industries. Previously, similar situations occurred with the U.S. steel and aluminum tariffs, and investors should pay attention to potential trade retaliations from other countries.
Apart from the tariff policy, another market focus will be the upcoming U.S. non-farm payroll data for March, set to be released on April 4. While the tariff policy may have short-term impacts, the Federal Reserve might focus more on the labor market performance. If the non-farm data disappoints, investors may further flock to U.S. Treasury bonds and gold as safe-haven assets, putting pressure on the dollar, U.S. stocks, and U.S. Treasury yields.
Amid escalating global trade conflicts and geopolitical tensions, the yen has once again become a target for safe-haven capital inflows. Goldman Sachs predicts that USD/JPY may fall to the lower end of the 140 range, as concerns over U.S. economic growth and trade tariffs drive demand for the yen as a safe asset. Although auto tariffs may impact Japan's economy, especially hitting the automotive industry, Japan's inflation rebound and strong wage growth suggest that the Bank of Japan will maintain its rate hike policy in the medium term.
In fact, the fall in USD/JPY is closely related to the narrowing interest rate differential between the U.S. and Japan. Although the Bank of Japan's rate-hiking pace may be delayed due to the impact of auto tariffs, the trend of rate hikes is expected to remain unchanged as the Japanese economy gradually recovers. In March last year, the Bank of Japan ended its aggressive monetary easing policy that had been in place since 2013 and raised rates for the first time, while announcing the cancellation of the yield curve control (YCC) policy, marking a significant shift in Japan's monetary policy.
