USD/JPY drops to its lowest in seven months before recovering some ground.
Flight to safety remains in vogue, lifting the Japanese Yen while the US Dollar crashes on growth concerns.
US-China trade war escalates with Chinese responding with a tariff hike to 125% on US goods.
USD/JPY extends its losing momentum into the fourth consecutive day in European trading on Friday, having recorded its lowest level in seven months just above 142.07.
USD/JPY faces a double-whammy
Despite the quick rebound, risks remain skewed to the downside for the USD/JPY pair, as it continues to face headwinds from a relentless US Dollar (USD) sell-off and a massive surge in the haven demand for the Japanese Yen (JPY).
Risk-off flows remain in full swing this Friday, accentuated by the latest retaliation by China. Beijing announced on Friday that it would raise tariffs on US goods from 84% to 125%, responding to President Donald Trump's increase of tariffs on Chinese imports to 145%.
The intensifying US-China trade war rattled markets again, fuelling safe-haven flows into the JPY. Meanwhile, the USD remains under heavy selling pressure as investors fret the negative impact of the trade war on the US economic growth prospects, which could propel the US Federal Reserve (Fed) to opt for aggressive interest rate cuts.
Moreover, the pair remains undermined by the diverging monetary policy expectations between the Fed and the Bank of Japan (BoJ).
Looking ahead, traders will take some cues from the US Producer Price Index (PPI) data for March and the University of Michigan (UoM) preliminary Consumer Sentiment Index data for April. However, the US-China trade war updates will remain the main market driver.
Separately, Japanese Economy Minister Ryosei Akazawa noted that they will hold tariff negotiations with the US on April 17.
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