Does the weakness of the USD make it easier for other central banks? - Commerzbank

In addition to the flight to safe havens, the prospect of a further normalisation of monetary policy by the Bank of Japan is also likely to have supported the yen recently. According to statements made by BoJ Chairman Kazuo Ueda this morning, however, the central bank is leaving all options open. This is because the impact of US tariffs on inflation is not clear, i.e. it could be inflationary or disinflationary, Commerzbank's FX analyst Thu Lan Nguyen notes.

Seems highly unlikely that the effect of the tariffs will be reversed

"Megan Greene, MPC member of the Bank of England, also explained why this is not clear. It is relatively straightforward that the US tariffs will not only harm economic growth in the US, but also its trading partners. However, the USD exchange rate makes it difficult to assess inflation."

"This is because, as we have already explained here, the US tariffs should have led to an appreciation of the US currency. This in turn would have been inflationary for trading partners. However, as the dollar has now depreciated, the effect via the exchange rate channel is disinflationary."

"If this remains the case, most central banks will be spared a dilemma: weighing up economic and inflation risks. A decision in favour of a more expansionary monetary policy would be easier, which in turn would weaken the appreciation pressure against the dollar. For the moment at least, it seems highly unlikely that the effect of the tariffs will be reversed (without the tariffs being lifted)."