The USD/JPY has climbed above 146.00, driven by a stronger US Dollar and less demand for the safe-haven Yen. This rise is influenced by increasing US Treasury yields and heightened US-Japan trade issues. The US plans to impose a 25% tariff on Japanese imports starting August 1. President Trump has warned that tariffs could rise if Japan retaliates against US goods. This conflict follows Japan’s refusal to import US rice during trade talks.

US Treasury Yields and Labor Data

US Treasury yields have increased, supported by positive Nonfarm Payroll data, which lowers the chances of a quick interest rate cut by the Federal Reserve. The yield on the 10-year US Treasury note is now above 4.45%, strengthening the Dollar. Meanwhile, the Japanese Yen remains weak due to a hesitant Bank of Japan and disappointing domestic economic data. Recent wage growth in Japan has been disappointing, reducing expectations for any changes in Bank of Japan policy. The USD/JPY has shown a bullish trend, breaking through a crucial resistance level at 145.00. It has support at the 23.6% Fibonacci retracement level of 144.70. Resistance is now at 146.00, with potential gains towards 147.00 unless trade issues are resolved. The upward trend is supported by a rising trendline originating from April’s low of 139.89. The Yen’s value is closely linked to Japan’s economy and the Bank of Japan’s policies. The BoJ’s very relaxed policies have weakened the Yen, but recent adjustments and global interest rate cuts have provided some support. The Yen typically acts as a safe-haven investment during market stress, rising in value compared to riskier currencies during turbulent times. With the US Dollar’s strength, fueled by rising Treasury yields and solid labor market data, the upward movement in USD/JPY seems fundamentally backed. The 10-year Treasury note yields remain above 4.45%, indicating that investors are adjusting their forecasts regarding any US interest rate cuts. In simple terms, stronger job growth signals to the Federal Reserve that there is less urgency to lower rates. This keeps the Dollar attractive.

US Japan Trade Relations

At the same time, Japan’s reluctance to meet certain US trade demands—particularly regarding agricultural imports—has prompted retaliatory threats from Washington. The upcoming 25% tariffs on Japanese goods, starting in early August, have weighed down the Yen. The sharp statements from the White House about further action if Japan retaliates are increasing market worries. Typically, such disputes would lead to buying the Yen, but that hasn’t happened. The reason? Japan’s economy lacks momentum, and its monetary policy remains loose. For example, recent wage growth figures in Japan fell short of expectations. This data further diminishes any hopes for a quick policy change from the Bank of Japan. While there have been hints of policy adjustments, there is little to suggest a tightening cycle is starting. As a result, the Yen is likely to stay weak unless something external boosts its safe-haven status. From a trading perspective, technical signals show there is still room for the Dollar to gain strength against the Yen. With resistance at 146.00 now surpassed and positive momentum, movements toward 147.00 seem likely unless unexpected events occur. Support at 144.70—the 23.6% Fibonacci level—will be crucial if we see any pullbacks. The upward trend established since April continues to keep price action in a defined upward channel. For those monitoring Forex derivatives, this direction is beneficial. Implied volatility remains moderate despite political news, allowing for long Dollar positions with relatively low costs. Carry trading also favors holding Dollars over Yen, enhancing the attractiveness of structured strategies that capitalize on gradual appreciation or range-bound trading between 146 and 148 in the coming weeks. Price action illustrates that technical and macro factors are working together. When rate forecasts align with domestic data, and political risks support similar trends, we generally see stronger conviction in continuation trades. However, it’s essential to stay alert to risks, especially unexpected shifts in Fed rhetoric or policy changes from Tokyo, as these could disrupt the current direction. Additionally, Japan’s role as a significant holder of US Treasuries adds more complexity to this situation. Tariff-related trade tensions could potentially influence financial asset flows, which isn’t the primary focus now, but it’s important to consider how these broader connections might impact market pricing. We are also noticing an increased demand for downside protection via put spreads, indicating some traders are cautious about volatility before the tariff deadline. Strategically timing risk layers within statistical arbitrage or straddle setups could help mitigate exposure in the sessions ahead. For trend-followers or volatility traders, there’s a chance to leverage this alignment—policy differences, stable rates, and predictable technical signals—while remaining flexible enough to adjust if unexpected developments arise from Washington or Tokyo. Create your live VT Markets account and start trading now.

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