empty
04.07.2025 12:48 AM
US-Japan Trade Talks at an Impasse, BoJ Holds Off

The Bank of Japan's quarterly Tankan report showed that the impact of new US tariffs has not yet had a significant effect on corporate sentiment, and business conditions for large manufacturers unexpectedly improved compared to the March survey.

Business conditions for large enterprises rose by 1 point to +13. The forecast for the next quarter showed a 1-point decline to +12. In the automotive sector, the outlook also declined by just 1 point, suggesting that the impact of Donald Trump's tariffs is not yet expected to be particularly problematic.

This image is no longer relevant

Japan and the US have already held seven rounds of trade talks aimed at resolving all bilateral disagreements, but no progress has been made. In its July 1 report, the Mainichi newspaper described the negotiations as "deadlocked," and the prospects of reaching an agreement before the tariff suspension expires on July 9 look grim.

On June 20, Trump stressed that he had no intention of lowering the tariff rate on vehicles, calling it "unfair" that "Japan doesn't accept our cars, but we import millions and millions of their cars into the United States." The next day, he stated that "Japan doesn't take our rice, and they have a massive rice deficit," hinting that on July 9, he may unilaterally impose higher tariffs on Japan. Then, on July 1, Trump told reporters that he was "not sure we will make a deal" and suggested tariffs on Japanese imports could rise to 30% or 35% (i.e., beyond the general 24% mutual tariff rate).

Currently, Japan is expected to extend the tariff suspension until September 1, but the risks are high given Trump's clear dissatisfaction.

All of this is certainly interesting, but the key question is: how do the negotiations influence the BoJ's stance on interest rates? The BoJ minutes from the June 17 meeting suggest that the Bank intends to maintain a wait-and-see approach until the tariff issue is resolved. Since automobiles are the foundation of Japan's exports to the US, the BoJ will not rush to hike rates without a deal — the issue is too important and leaves no room for error.

Conclusion: The longer the negotiations drag on, the longer the BoJ's pause will last. And the longer the pause, the greater the uncertainty, as there is no driver for yen appreciation. Market forecasts currently assign just over a 50% chance of one rate hike by year-end, which is insufficient for the yen to resume its previously halted rally.

After seven consecutive weeks of decline, the net long position on the yen increased by $148 million to $11.4 billion — a clear bullish bias — but the lack of movement in the fair value suggests a lack of direction for USD/JPY.

This image is no longer relevant

The yen remains in a trading range, with no clear direction. If the negotiations result in an outcome more favorable to Japan than the unilateral US-imposed tariff rate, the likelihood of a BoJ rate hike will increase, and the USD/JPY exchange rate will likely break downward out of the range, targeting the 127–129 area. If there is no resolution, risks will rise, and in that case, range-bound trading will likely continue, with a slow upward drift toward 149–150.

Kuvat Raharjo,
Analytical expert of InstaTrade
© 2007-2025

Recommended Stories

EUR/USD. What Does the U.S. CPI Report Indicate?

Traders of the EUR/USD pair interpreted the U.S. CPI report in favor of the U.S. dollar, despite the release being somewhat mixed. The report reflected an acceleration in both headline

Irina Manzenko 00:03 2025-07-16 UTC+2

Trump Misleads Again—and Loses

Over the past few months, Trump has repeatedly criticized the Federal Reserve for its reluctance to cut interest rates. According to the U.S. President, such a high rate (4.5%)

Chin Zhao 00:03 2025-07-16 UTC+2

The Dollar Launches a Witch Hunt

Everyone gets what they want. Supporters of the U.S. dollar are pleased that American inflation accelerated in June, leaving the Federal Reserve with no grounds to cut the federal funds

Marek Petkovich 00:02 2025-07-16 UTC+2

Pressure on the Pound Is Mounting

Incoming macroeconomic data from the UK appears distinctly weak. GDP unexpectedly declined by 0.1% in May instead of the forecasted 0.1% growth. The trade balance deficit exceeded expectations, industrial production

Kuvat Raharjo 00:02 2025-07-16 UTC+2

AUD/JPY. Analysis and Forecast

Today, Tuesday, during the European session, the AUD/JPY pair reached the round level of 97.00. The yen continues to show relative weakness amid growing expectations that the Bank of Japan

Irina Yanina 12:44 2025-07-15 UTC+2

EUR/USD. Analysis and Forecast

On Tuesday, the EUR/USD pair is gaining positive momentum, recovering from more than two weeks of declines triggered by Trump's threat to impose new tariffs. On Saturday, Trump announced plans

Irina Yanina 12:30 2025-07-15 UTC+2

The European Union Finalizes Second List of Countermeasures

The European Union has finalized its second list of countermeasures against U.S. goods, totaling 72 billion euros. This step comes in response to the ongoing trade tensions between

Jakub Novak 11:25 2025-07-15 UTC+2

Trump's Actions Alarm Germany

While the euro remains relatively stable, German Chancellor Friedrich Merz is not feeling as confident. In a recent interview, he stated that U.S. President Donald Trump's threat to impose 30%

Jakub Novak 11:11 2025-07-15 UTC+2

Rising Inflation in the U.S. Will Decrease the Likelihood of Fed Rate Cuts (Possible Resumption of USD/CAD and Bitcoin Growth)

While President Donald Trump continues playing his favorite game called "Make America Great Again," market participants are calculating the cost of U.S. trade wars with nearly the entire world

Pati Gani 09:58 2025-07-15 UTC+2

The Market Will Break Out of Its Cage

Deep down, markets still believe tariffs could become an inflationary force. However, without confirmation from official data, investors are not ready to sell the S&P 500. They've grown accustomed

Marek Petkovich 09:14 2025-07-15 UTC+2
Can't speak right now?
Ask your question in the chat.
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaTrade anyway.

We are sorry for any inconvenience caused by this message.