LONDON: A US threat to impose new tariffs on Chinese imports pushed the safe-haven Japanese yen to a five-week high against the dollar and a two-and-a-half-year high against the pound.
US President Donald Trump said a 10% tariff would be imposed on $300 billion worth of Chinese goods on Sept. 1, after US negotiators returned from trade talks in Shanghai and reported no progress. Trump claimed China had failed to live up to promises made in previous talks.
The yen was up 0.4% to 106.95 against the dollar. It had jumped to 106.86 in Asian trading, its strongest since June 25. It was last up 0.6% at 129.61 against the pound after gaining to 129.41 earlier, its strongest since November 2016.
"There was a speculative move to test the dollar/yen's downside, but it ran into a lot of real-demand bids," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
"Yen buying still has further room to run, especially against the crosses. Trump has given us plenty of reason to move to risk-off trades. The trade war will be in focus for some time to come."
The battered pound recovered some losses on Friday, but it was not far from the 30-month low it reached on Thursday. It was last trading unchanged at $1.2123 and at 91.48 pence against the euro.
Most market participants remain wary of sterling, worried that the chances of a disorderly Brexit grew after Boris Johnson took over as prime minister last month.
Traders will be watching UK construction purchasing managers' survey due at 0830 GMT. According to economists polled by Reuters, the PMI is expected to rise to 46 in July from 43.1 in June, though still remaining in the contraction territory.
The euro was unchanged at $1.1091, not far from the 26-month low it hit the previous day.
Non-farm payrolls are due in the United States later in the day. Economists a decrease in the number of jobs added to the economy, to 164,000 in July from 224,000 in June.
Responses to the jobs report are "skewed toward a bigger move to a weak report, given it would reinforce the increased global risk concerns," said Derek Halpenny, currency strategist at MUFG after the escalation in the US-China trade war.
Elsewhere, the Swiss franc reached a two-year high of 1.0949 against the euro.