Taking aim at what he said was a surge of illegal immigrants across the southern border, Trump vowed on Thursday to impose a tariff on all goods coming from Mexico, starting at 5pc and ratcheting higher until the flow of people ceases.
The Mexican peso tumbled against the greenback, losing as much as 3.4pc at one point, for its steepest single-day loss since October.
Trump's surprise duties on Mexican imports "spurred sharp losses in the Mexican peso and a general risk-off move that strengthened the yen," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.
Several different currencies have served as safe havens during the global trade conflict, but the yen has consistently been among the strongest this year, and on Friday investors appeared to opt for the Japanese currency.
The yen increased 0.89pc at 108.655 per dollar and 0.76pc per euro, respectively.
For May, the Japanese currency was on track to gain 2.50pc against the dollar and 3.17pc versus the euro.
The Swiss Franc also enticed safe-haven buying, rising 0.26pc at $1.0051.
The impact of escalating trade tensions between Washington and Beijing is starting to show up in economic data, with a key measure of Chinese manufacturing activity disappointing investors, and Trump's latest salvo fueled a rush on Friday to safe-haven assets such as government bonds and the yen.
The US dollar has itself served as a safe haven currency in recent times, but on Friday, it fell 0.13pc against a basket of other currencies, hovering below a two-year peak reached last week.
For the month, the dollar index was on track for a 0.4pc gain, extending its winning monthly streak to four.
The dollar's broad losses on Friday were compounded by comments from senior policymakers, with the US Federal Reserve Vice Chair Richard Clarida discussing the possibility of rate cuts should the world's biggest economy take a turn for the worse, though he also said he thought the US economy is in "a very good place".
US interest rates futures implied traders expect at least one rate cut from the Federal Reserve by year-end.
Goverment data on Friday showed a modest pickup in inflation in April, while a private report indicated a stronger-than-forecast improvement in US Midwest manfacturing activity in May.