Dollar strengthens against yen as Trump ramps up trade war rhetoric

The dollar extended its gains against the yen on Wednesday, buoyed by mounting expectations of fresh US trade actions under President Donald Trump’s intensifying protectionist campaign.

Trump signals new trade announcements

President Trump pledged additional trade-related proclamations just one day after unveiling steep 25 per cent tariffs on imports from Japan and other trading partners. According to Reuters, he indicated further announcements would come on Wednesday, mentioning “a minimum of 7 countries” in a post on social media.

While he stopped short of specifying whether these would involve new tariff letters or trade deals, Trump reiterated that sharply higher tariffs were set to begin on August 1. He also left open the possibility of granting extensions if other countries offered proposals for improved trade terms.

As per Reuters, multiple rounds of US-Japan trade talks have failed to deliver a breakthrough, with negotiators at odds over politically sensitive issues such as Japan’s rice market protections.

Currency markets respond to tariff escalation

The yen weakened for a third straight session against the greenback, with the dollar rising 0.2 per cent to 146.85 yen on Wednesday. This followed a move to more than a two-week high on Tuesday, as traders weighed the prospect of escalating US import tariffs.

According to Reuters, the broader dollar index, which tracks the US currency against six major peers was steady at 97.582 after climbing over the previous two days. The euro held little changed at $1.1720.

Sterling slipped 0.1 per cent to trade at $1.35795 in early dealings, while the Australian dollar dipped 0.07 per cent to $0.6526, giving back part of Tuesday’s 0.6 per cent rise. New Zealand’s kiwi dollar also fell 0.1 per cent to $0.5993.

Bond yields underpin dollar strength

Analysts noted that rising US Treasury yields have helped support the dollar’s rally. According to Reuters, the pair’s move was also aided by a fifth consecutive day of gains in US bond yields and a sharp rise in Japanese government bond (JGB) yields amid fiscal worries ahead of Japan’s upper house elections on 20 July.

Tony Sycamore, an analyst at IG, wrote in a client note that talks between Washington and Tokyo appeared stalled over Japan’s reluctance to open its rice market further, making a near-term compromise unlikely.

Bank of Japan cautious on inflation pressures

Meanwhile, Japanese policymakers remain alert to the potential inflationary impact of food prices. Bloomberg reported that Bank of Japan board member Junko Koeda said she was closely monitoring possible second-round effects on underlying inflation stemming from recent increases in rice prices.

EU may avoid new US tariffs

As Trump prepares new tariff measures, European officials appear more optimistic about avoiding the worst of the fallout. EU sources familiar with negotiations told Reuters this week that the European Union would not receive a new tariff letter and could secure exemptions from the US baseline tariff rate of 10 per cent.

Wider tariff agenda targets copper, semiconductors

President Trump’s tariff escalation is not limited to Japan. On Tuesday, he confirmed a plan to impose a 50 per cent tariff on imported copper, arguing the measure would bolster domestic production of a metal crucial to sectors ranging from electric vehicles to military hardware.

As per Reuters, Trump also signalled that new tariffs on semiconductors and pharmaceuticals were in the pipeline, underscoring the broad scope of his administration’s industrial policy agenda.

Treasury Secretary to skip G20 meeting

In a separate development, Reuters reported that US Treasury Secretary Scott Bessent will not attend the upcoming Group of 20 finance officials meeting in South Africa. Sources familiar with his plans said he would instead travel to Japan for the World Expo 2025 in Osaka.

As markets await further clarity on Washington’s next moves, traders are bracing for a volatile period, with global currencies, bond yields and trade negotiations all in the spotlight as the US intensifies its trade war strategy.