Yen Slips on Trade Tensions, Policy Divergence

 Key Takeaways:

*JPY pressured as U.S. trade threats raise tariff risks

*BoJ tightening bets fade, yield gap favors USD/JPY upside

*Ceasefire limits safe-haven demand, weighing on yen

Market Summary:

Wall Street regained footing from earlier weakness, with both the Nasdaq and S&P 500 extending their The Japanese Yen extended its decline this week, weighed down by escalating trade tensions with the U.S. and growing policy divergence with the Federal Reserve. While easing geopolitical concerns offered temporary relief to traditional safe-haven assets, the yen remained under pressure as markets shifted focus toward the July 9 U.S.-Japan tariff deadline and persistently wide yield differentials.

Investors reacted cautiously after President Trump threatened to impose 30–35% tariffs on Japanese auto imports if no deal is reached by next week, rekindling fears of a renewed trade war. His inaccurate claim that Japan “doesn’t buy U.S. rice”—despite $300 million in imports last year—added to market unease. The move followed fresh U.S. tariffs on Vietnamese goods, raising concerns that Japan may face similar treatment. Exporters and policymakers remain on alert ahead of potential last-minute negotiations.

On the monetary front, expectations for near-term policy tightening by the Bank of Japan have faded. Despite earlier speculation of a possible July rate hike, market pricing now reflects less than 14 basis points of cumulative hikes for 2025. The 10-year JGB yield remains capped around 0.4%, while U.S. 10-year Treasuries have climbed above 4.25%, reinforcing USD/JPY upside pressure. The BoJ’s ongoing yield curve control, combined with cautious inflation outlooks, has left the yen vulnerable to further declines.

While the tentative Middle East ceasefire helped ease global risk aversion, safe-haven flows into the yen have been muted. Japan’s equity markets have rallied on yen weakness, but foreign investor flows remain sensitive to potential currency intervention by Japanese authorities—especially as USD/JPY nears levels last seen prior to past BoJ intervention efforts.

Looking ahead, traders are closely watching the July 3 U.S. nonfarm payrolls report and Japan’s wage data due July 5. A soft U.S. jobs print could revive Fed rate cut bets and weigh on the dollar, while stronger Japanese wage growth may help revive BoJ tightening expectations. However, the July 9 tariff deadline remains the primary risk event—failure to reach a U.S.-Japan deal could trigger a sharp yen selloff. Until policy clarity emerges or the Fed signals a dovish turn, the yen is likely to remain under pressure, with intervention risks looming should volatility intensify.

Technical Analysis 

USDJPY, H4

USD/JPY has stabilized following a sharp retracement, now trading near the 143.90 handle after finding support around 142.66. The pair is attempting a cautious rebound, although it remains below key horizontal resistance at 144.30 and the former descending trendline now acting as dynamic resistance.

This recovery effort follows a series of higher lows since the recent bottom, hinting at potential bullish accumulation. However, underlying momentum signals urge restraint. The Relative Strength Index (RSI) is currently at 48, still below the midpoint and suggesting that bullish momentum has yet to fully reassert itself. While the RSI has bounced off oversold conditions, it is now approaching a flattening trajectory, indicating hesitation among buyers as the price nears a critical decision zone.

The MACD reinforces this mixed outlook. Though the MACD line has crossed above the signal line, suggesting a potential bullish shift, both remain in negative territory and the histogram is only modestly positive. The lack of strong expansion here signals that the rebound lacks conviction and may be vulnerable to stalling.

This positions USD/JPY at a pivotal juncture: bulls may look for a breakout above 144.30 to extend toward 145.10, reclaiming lost ground. However, failure to decisively clear resistance—or a bearish rollover in RSI or MACD—could open the door for a retest of 142.66, with further downside potential toward 141.70. Price action in the coming sessions will be crucial in resolving this tug-of-war between rebound optimism and lingering downside risks.

Resistance levels: 144.30, 145.10

Support levels: 142.66, 141.70