Yen Under Pressure as Policy and Trade Risks Mount

Key Takeaways:
*With swaps now pricing just 10bps of tightening, Japan’s monetary inertia continues to weigh heavily on the yen.

*Washington’s proposed 25% tariffs on Japanese goods erode the yen’s safe-haven appeal. 

*Despite a strong current account and cheap yen, structural drags—subdued wage growth and fragile domestic demand—undermine the JPY.

Market Summary:

In a televised cabinet session yesterday, President Trump jolted markets once again by proposing an adThe Japanese yen continues to struggle under the weight of escalating trade tensions and entrenched monetary policy inertia. USD/JPY has surged toward the 146.50 mark—a level not seen in two weeks—highlighting investors’ preference for yield in a backdrop where the Bank of Japan remains resolutely dovish. Despite Japan’s widening current account surplus and a weak yen that should, in theory, bolster exports, the currency remains an underperformer within the G10 complex.

Underlying the yen’s weakness is a persistent mismatch between domestic fundamentals and global market drivers. Prime Minister Ishiba’s description of Washington’s proposed tariffs as “truly regrettable” reflects the broader unease within Tokyo’s policy circles. With the August 1 deadline approaching, tariff anxiety continues to sap the yen’s traditional safe-haven appeal. The proposed 25% levy on Japanese imports adds yet another layer of uncertainty for an economy already grappling with tepid wage growth and subdued consumption.

Compounding the currency’s woes is the Bank of Japan’s reluctance to shift its ultra-loose stance. Swaps markets have steadily pared back expectations for any meaningful tightening this year, now pricing in just 10 basis points of hikes—a two-month low. Traders appear unconvinced that inflationary pressures are sustainable, especially with labor earnings continuing to disappoint. The result is a policy vacuum at a time when global central banks are reorienting toward normalization.

For now, the yen’s trajectory remains tethered to the outcome of U.S.-Japan trade talks and the broader performance of the U.S. dollar. A break above the 146.75 resistance level could open the path toward 147.70, in line with the May-June technical trendline. However, without a decisive policy pivot or a de-escalation in trade rhetoric, the yen remains vulnerable to external shocks—and policy missteps at home.

Technical Analysis 

USDJPY, H4

USD/JPY has extended its upside push, trading just below the 146.80 mark after breaking through previous resistance at 146.20. The pair remains well-supported by an ascending trendline dating back to early July, with bulls maintaining control amid broader dollar strength and rising U.S. yields.

Technically, the Relative Strength Index (RSI) is holding elevated at 73, indicating overbought conditions. While this suggests stretched momentum, there are no immediate signs of reversal. However, a dip back below 70 could flag the early stages of bullish fatigue, especially if price action begins to stall around the 147.00–147.10 resistance band.

The MACD continues to show upside momentum, with the MACD line positioned above the signal line and both tracking well into positive territory. While the histogram has started to flatten slightly, it has yet to show a meaningful decline, implying that the bullish trend is still intact—albeit potentially losing some steam.

For now, USD/JPY remains in a constructive short-term structure. But with momentum indicators at stretched levels and key resistance overhead, the next 12–24 hours could determine whether bulls can sustain this breakout—or whether the pair is due for a technical breather.

Resistance levels: 147.70, 148.60

Support levels: 146.20, 145.10