Every day the market is being swayed by the Trump cannon, and President Trump has announced that he will apply 25% tariffs on Canada and Mexico.

While a last minute reversal is still quite possible, the damage to the Canadian economy would be significant if the 25% tariffs were indeed applied. If the tariffs are eventually applied to Europe, is the Eurodollar OK to sell back? Tariffs may be applied especially on automobiles.
The impact of tariffs on the Japanese economy is unknown, but if tariffs are not applied to Japan but to China and other regions, the Japanese economy may rather see risk-off yen buying. Looking at the dollar/yen on its own, the yen appreciated a bit in January. The rebalancing at the end of the month was not very large.

Last week, IT-related stocks were heavily underperforming on concerns that U.S. IT technology might be inferior to China’s after Deep Seek, a Chinese startup AI company, showed performance comparable to Chat GPT without using the latest chips at very low cost, and its app was the No. 1 download in the Apple Store. In August last year, the U.S. unemployment rate was at its lowest level in more than a decade. In August of last year, the U.S. unemployment rate rose sharply, and concerns that the U.S. economy might be modulating were the backdrop to the selloff.

The yen strengthened in response to the Deep Seek shock, and weakened when U.S. Treasury Secretary Bessent suggested uniform tariffs, and as the market reacted sharply to the dizzying flow of news, Atsuko Koeda of Waseda University was reportedly appointed as a member of the BoJ’s Board of Advisors. The BoJ board is becoming more hawkish, as her predecessor, Mr. Adachi, was a so-called “reflationist” member of the BoJ’s board. However, even with last week’s rate hike, so far the Nikkei 225 and the dollar/yen have avoided a major collapse. The chairman of Keidanren has also supported the BOJ with positive statements.

There may be a possibility that the yen may come under a little pressure before the Trump-Ishiba meeting on February 7.