FOREX-Yen holds gains vs US dollar ahead of tariff announcement

By Laura Matthews

NEW YORK, April 1 (Reuters) - The yen rose against the dollar on Tuesday, after U.S. economic data showed softness in the manufacturing sector and labor market ahead of tariff announcements from the Trump administration due Wednesday.

U.S. manufacturing contracted in March after two consecutive months of expansion, while a measure of inflation at the factory gate was the highest in nearly three years. This comes as concerns mount about how much tariffs will hike prices for consumers and businesses.

A Labor Department report also showed job openings fell to 7.568 million in February.

"It is clear that the manufacturing sector is already bearing the brunt of President Trump's protectionist policy changes - and that the rest of the economy could suffer the downstream consequences in the months ahead," said Karl Schamotta, chief market strategist, at Corpay.

"Market nerves are badly frayed ahead of Trump's 'Liberation Day' tariff announcement. With deeply-contradictory narratives emerging around the scope, scale, and duration of the administration's proposed trade measures, investors are trimming risk across the currency markets and waiting for the details to emerge," he added.

Investors see the Japanese currency as a safer asset than the dollar in the current environment, as U.S. tariffs would likely hurt the U.S. economy as well.

Though markets have mostly consolidated to the previous day's ranges, the greenback fell 0.37% to 149.41 versus the yen JPY=, while the euro EURJPY= fell 0.65% to 161.14 yen.

Readings for weekly jobless claims and monthly non-farm payrolls later in the week could give markets further insights into how uncertainty in U.S. trade policy is hurting its economy.

The dollar index =USD, which measures the U.S. currency against six rivals, was flat at 104.25.

"It's really the stock market sell off that is dragging down bond yields, which is also serving as a drag on the dollar," said Marc Chandler, chief market strategist, Bannockburn Global Forex. "It's hard to see a sustained dollar gain when interest rates are falling."

Trump announced late on Sunday that all countries would face new tariffs this week, though he provided no specific details. He had previously talked about 25% tariffs against European goods.

White House aides have drafted a proposal to impose tariffs of around 20% on most imports to the United States, the Washington Post reported on Tuesday.

European Commission President Ursula von der Leyen said the EU was open to negotiations with the U.S. on trade, but would retaliate strongly if necessary.

The euro EUR=EBS fell 0.29% to $1.0786 after gaining 4.5% in the first quarter of the year, its strongest quarterly performance since October-December 2022, thanks mainly to Germany's commitment to sharply increase fiscal spending.

Meanwhile, investors have boosted their bets on future European Central Bank rate cuts due to tariff fears and weak economic data, driving bond yields and the single currency lower.

In other currencies, the Australian dollar AUD= was up 0.4% at US$0.6271 after the central bank left rates unchanged as expected. It hit 0.6217 on Monday, its lowest since March 4.