USD/JPY is trading within a tight range as traders watch key issues like PM Ishiba’s political future, tariffs, and differences in US-Japan monetary policies. Currently, the pair sits at 147.73, and analysts are noting a tendency to sell during rallies. The upcoming US Consumer Price Index (CPI) report could sway US Treasury yields, which may impact USD/JPY. PM Ishiba’s political standing is under scrutiny after the LDP’s performance in the Upper House elections, with growing calls for his resignation. Recent tariff discussions indicate that the US will eliminate stacking tariffs and cut car tariffs, refunding some excess charges. Daily momentum indicators are slightly bearish, with the RSI remaining steady, hinting at a short-term consolidation phase. Resistance levels are at 147.90 and 149.40/50, while support lies at 147.10 and 146.20. Political uncertainties and credit rating concerns could bolster the pair, but declining USD demand and narrowing yield gaps may offset this support. Currently, USD/JPY is hovering around 147.73, showing trader hesitation as they balance the strength of the US dollar with developments in Japan. We believe the best strategy for now is to sell on any strength approaching the upper range. The upcoming US CPI report is crucial. After the July 2025 CPI data indicated inflation at 3.4%, US 10-year Treasury yields rose to about 4.35%, providing solid support for the dollar. If inflation remains high, it could lead the pair to test the 147.90 resistance level. We are also watching the political climate in Tokyo, where PM Ishiba’s position appears shaky. With the LDP’s poor performance in the recent Upper House elections, discussions of a leadership challenge are increasing. Typically, political instability pressures the yen, helping to sustain USD/JPY. It’s essential to consider the broader context of monetary policy, which remains a primary driver. The Bank of Japan’s historic decision in March 2024 to end negative interest rates has led to minimal change, with the policy rate still at 0.10%. This significant gap between US and Japanese interest rates is a key reason the pair remains elevated. Given the flat RSI, we suggest range-trading strategies instead of betting on a major breakout. Selling short-term call options with a strike price near 147.90 might be a good way to collect premiums. Conversely, traders expecting a decline could buy put options if the pair dips below the 147.10 support. One factor that could strengthen the yen is the recent change in trade tariffs. The US’s decision to remove some tariffs on Japanese goods, including cars, is a positive sign for Japan’s export economy. This development acts against the dollar’s strength and partly explains why the pair has faced challenges in surpassing resistance levels.

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