[MARKET ANALYSIS] JPY soars without fresh news, KRW pressured after Trump hits South Korea with 25% tariffs

• G10s were initially broadly lower against the USD, but following recent JPY strength, G10s are now broadly higher. JPY leads the pile (vs initially underperforming), whilst the NZD and CAD hold around the unchanged mark. EUR/USD is mildly lower, and ultimately within a narrow 1.1850-1.1899 range. Earlier, the EU and India announced an FTA, which cuts circa EUR 4bln of tariffs on the bloc’s exports.
• Delving into USD/JPY, the pair fell from 154.49 to a session low of 153.16 within a few minutes, but has since pared back towards 153.90. This drove the pair below the prior day’s low, and also below its 100 DMA at 153.61. A move that also weighed on the Dollar index, which fell from 97.10 to a session low of 96.90. Nothing fresh behind that move, with traders ultimately mindful of potential intervention risks, or further rate checks carried out by the US and/or Japan.
• Note, the JPY move occurred in proximity to reports of an explosion near Iran's Parchin site, a development that potentially influence the JPY; however, the lack of follow-through to other assets, particularly crude, diminishes this narrative.
• DXY is flat this morning and trades within a 96.90 to 97.28 range, and is currently holding within the prior day’s ranges. On the trade front, US President Trump said South Korea had delayed its trade agreement with the US and imposed a 25% tariffs on various Korean sectors – the Korean Industry Minister is to visit the US, and aims to pass a special act on the deal by end-February. The Korean Won was initially pressured at the reopening of trade, but has pared about half of the move. Back to the US, markets await US ADP Weekly Average figures, Richmond Fed and Consumer Confidence. Traders also count down their clocks to the FOMC tomorrow, and barring any surprises in the data – DXY may stay within narrow ranges into the confab.

The JPY's unexpected strength suggests traders may be positioning for potential intervention risks from Japan, despite no clear catalyst driving the move. Meanwhile, the KRW is under pressure due to Trump's announcement of a 25% tariff on South Korean sectors, potentially complicating trade dynamics in the region. This divergence in currency movements highlights the sensitive interplay of geopolitical events and market sentiment, which could have implications for FX positions leading into key U.S. data and the upcoming FOMC meeting.