Japanese Yen Struggles Amid Tariff Tensions and Political Uncertainty; USD/JPY Aims for More Gains
Japanese Yen (JPY) continues to struggle even after a slight bounce back from its recent two-week trough against the US Dollar (USD) due to increased fears about the economic consequences of US-imposed tariffs and domestic political tensions. Market participants increasingly feel the Bank of Japan will keep further rate hikes on the backburner, particularly with Japan’s economy also showing signs of weakness and wages tumbling sharply. In the meantime, the USD remains supported by expectations the Federal Reserve will continue to have higher interest rates to counter the inflationary pressures generated by import tariffs. The technical bias for the USD/JPY pair continues to remain bullish, with major levels underpinning scope for further gains in the near term. KEY LOOKOUTS • Markets await the imminent Fed minutes for new cues on the timing and magnitude of probable rate reductions. • The July 20 House of Councillors election coming up and uncertainty regarding the ruling coalition’s majority can further dent JPY sentiment. • Market action around the US-imposed 25% tariffs and bilateral trade negotiations will continue to be a market driver. • The 100-day SMA around 146.00 is a key support, while 147.60–148.00 is a crucial resistance area for the USD/JPY pair. Japanese Yen continues to stay on the back foot despite some rally, as fears of US-imposed tariffs and political instability at home remain firmly in place, pushing the currency downwards. Expecations of the Bank of Japan remaining dovish on rate hikes with soft economic data and declining real wages have also weighed on JPY sentiment. The US Dollar is, however, underpinned by a solid Fed outlook with increasing inflation pressures from tariffs and a robust labor market. While investors wait for the FOMC minutes to gain clarity on the Fed’s policy direction, the USD/JPY currency pair is indicating strength with technicals signaling further possible upside. The Japanese Yen is still under pressure due to tariff jitters and political uncertainty in Japan. The US Dollar, on the other hand, remains underpinned on hopes of higher-for-longer Fed rates. Traders now look to the FOMC minutes to gain new policy clues on the USD/JPY currency pair. • Japanese Yen strengthens somewhat but hovers close to a two-week low versus the US Dollar. • US tariffs on Japanese products and economic damage concerns are bearing down on the JPY. • Political uncertainty within Japan in the run-up to the July 20 election also contributes to Yen weakness. • Bank of Japan will likely leave rates unchanged, citing weak economic data and declining real wages. • US Dollar remains strong on expectations of no near-term Fed rate reductions in the face of inflation concerns. • Technicals are positive for a rally in USD/JPY towards 147.60–148.00. • FOMC meeting minutes are in the spotlight for additional insight into the Fed policy tone. The Japanese Yen remains under pressure in the face of a mix of global trade tensions and domestic political risks. US President Donald Trump’s move to apply a 25% tariff to Japanese imports effective August 1 has alarmed the country about the potential macroeconomic effect on Japan, considering the nation’s already weak economic condition. The contraction of Japan’s first quarter and declining real wages underscore the pressure on household consumption and overall economic trajectory. These have convinced investors that the Bank of Japan is most likely to continue its ultra-loose monetary stance in the near future, cutting the attractiveness of the Yen for global investors. USD/JPY DAILY PRICE CHART SOURCE: TradingView Adding to the economic woes is increasing political instability in Japan. Recent opinion polls indicate that the government coalition led by the Liberal Democratic Party and Komeito could fall short of a majority in the next July 20 election for the House of Councillors. Such a result could lead to policy gridlock and make it more difficult for Japan to negotiate trade deals with the United States. Meanwhile, the US Dollar is still supported by solid labor market data and hopes that the Federal Reserve will postpone interest rate reductions. These factors continue to drive investor sentiment and are the most important determinants of the dynamics between the Japanese Yen and the US Dollar. TECHNICAL ANALYSIS USD/JPY currency pair has registered fresh bullish strength after breaking above the 100-day Simple Moving Average (SMA) for the first time in February, which is a possible trend change indicator. Daily chart oscillators are picking up positive momentum but still linger below the overbought threshold, indicating scope for higher levels. Near-term resistance lies around the 147.60–147.65 area, with the possible extension towards the 148.00 psychological level. On the negative, support is now present around the 146.50 level, followed by a firmer base near the 100-day SMA just below the 146.00 area, which is an important pivot for any bearish turn. FORECAST The USD/JPY pair looks set to gain further in the near term, underpinned by a robust US Dollar and positive technical configuration. As long as the bullish momentum continues, the pair could test the 147.60–147.65 barrier, with a possible breakout opening the door for a run to the 148.00 round number. Ongoing strong US data, solid Fed rate expectations, and safe-haven demand away from the Yen could continue to support demand for the USD/JPY pair. On the negative side, any corrective pullback is likely to encounter initial support around the 146.50 area, with renewed buying anticipated closer to the 100-day SMA, just below the 146.00 level. A firm break below this important level may switch the short-term bias to bearish shores and set the stage for a more significant decline. That said, barring a major change in monetary policy expectations or a breakthrough in trade tensions, downside excursions could remain capped.
