The USD/JPY is facing pressure as the US Dollar weakens. Japan is in its eighth round of trade talks with the US ahead of the August 1 deadline. The exchange rate has dropped below 147.00, showing less bullish momentum. The Japanese Yen is strengthening against the US Dollar, with attention on US-Japan trade talks and changes in Japan’s political scene. Key US trade officials are set to meet with Japan’s chief negotiator this week.

Trade Negotiations and Tariff Concerns

Current tariff discussions may extend a 25% US tariff on Japanese cars to more exports. Japan is pushing for exemptions and a rollback of tariffs, while the US demands concessions in digital services and agriculture. Results from Japan’s upper house elections slightly boosted the Yen. Prime Minister Ishiba remains in power despite losing some seats. This political uncertainty might affect future economic reforms and trade talks. Currently, the USD/JPY is trading around 146.78, with resistance at 147.14 and support at 146.00. A further dip could test the 50-day SMA at 145.17. If the pair rebounds past 147.60, it might approach 148.00 or higher. Tariffs are taxes imposed on certain imports, aimed at protecting local industries and are often used in trade protectionism.

US Election Influence on Tariff Strategies

As we approach the 2024 election, Donald Trump has hinted at using tariffs to enhance the US economy, particularly against Mexico, China, and Canada, which make up 42% of US imports. Given the current pressures on the USD/JPY pair, buying put options could be a wise strategy. This could allow traders to benefit if the price drops below the important 146.00 support level. Recent data shows core inflation in Tokyo holding steady at 2.0% in July, suggesting the central bank might act to strengthen the currency. The approaching August 1 deadline for trade talks increases this short-term downside risk. The uncertainty in trade negotiations and Ishiba’s weakened political position indicates that volatility is likely, regardless of the outcome. Strategies based on volatility, like long straddles, could profit from significant price changes in either direction. Similar high-stakes trade deadlines, such as during the 2018-2019 US-China trade conflicts, caused sharp increases in currency volatility that benefitted such strategies. We’re also considering the long-term effects of possible US policy changes mentioned. The potential for broad tariffs on Japanese exports under a future Trump administration could be a consistent challenge for the USD/JPY, especially concerning vehicles. In 2023, Japan exported over 1.7 million cars to the US, so we recommend looking into longer-dated put options to protect against or speculate on this ongoing risk. The technical levels provided will guide our trading and risk management strategies. A firm drop below the 146.00 support will trigger us to increase our bearish positions, aiming for the 50-day SMA near 145.17. Conversely, we should reassess any positions if the pair rises back above the 147.60 resistance, as one-month implied volatility has already climbed above 8%, indicating the market is preparing for a larger than usual price shift. Create your live VT Markets account and start trading now.

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