Summary
The US tariff measures turned out harsher than expected, but the dollar weakened across the board contrary to market assumptions. The escalation into a tit-for-tat exchange with China heightened concerns over a deterioration in the US economy. Speculation about the possible dismissal of Fed Chair Jay Powell added to the "sell America" mood, and the USD/JPY briefly broke below 140, approaching last year's low. For now, the dollar is likely to remain under pressure. The BOJ will likely be forced to delay its policy schedule, but its basic stance in favor of continued rate hikes should remain unchanged. The rapid drop in the USD/JPY raises the risk of a near-term rebound depending on developments in tariff negotiations, but the broader downward trend is likely to continue.
