Barclays: Retail buyers likely drove the latest leg of the rally
- USD/JPY stalls as Japanese political shifts and BOJ policy outlook cloud near-term direction.
- US-Japan trade talks resume, but tariffs from 1 August still appear likely.
- Slowing inflation supports BOJ hawks ahead of key policy meeting later this month.
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Even with the holiday period in Japan, there is quite a bit happening around the USD/JPY pair, as its recent upward momentum has slowed. In Japan, Prime Minister Shigeru Ishiba’s party lost in the upper house elections, which means he will likely need to form a coalition government. Depending on the fiscal direction of the new coalition, the Bank of Japan may need to adjust its monetary policy.
Meanwhile, trade talks between the US and Japan are still underway, with another round expected to begin this week. On the US side, one key issue is the Fed’s independence, as rumors about the possible removal of Fed Chair Jerome Powell continue to circulate — though the White House has repeatedly denied them.
Tariff Implementation Expected from 1 August
According to recent comments from the White House, including those by Scott Bessent, new US tariffs are set to begin on August 1 to push for better trade deals with individual countries. Japan remains under the threat of 25% tariffs. Another round of trade talks — the eighth so far — began in Washington yesterday, led by Japan’s Economic Recovery Minister Akazawa Ryosei. However, hopes for a breakthrough are low, with Ryosei warning that the negotiations will be difficult.
If there is no surprise or delay, the tariffs will take effect as planned. The Bank of Japan will likely have to respond. While the tariffs could raise inflation — potentially supporting interest rate hikes — the BOJ will also need to consider the risk of slowing economic growth, which might argue against tightening policy.
Japan’s Inflation Eases but Remains Above Target (NYSE:TGT)
The latest core inflation reading came in slightly below expectations at 3.3% year-on-year. This matches the underlying inflation figure, which also stands at 3.3%. In that case, it reflects a continued local disinflation trend that has been in place since February 2025.
This data trend is likely to support the hawkish camp, as it shows a clear slowdown in inflation. The next move will depend on the upcoming Bank of Japan meeting at the end of July.
USD/JPY Technical Analysis
After reaching the key resistance near 149 yen per dollar, USD/JPY lost momentum and entered a consolidation phase between 147 and 149. A breakout from this range will likely decide the next short-term direction.
If sellers push the price below 147 yen, it would confirm resistance holding and likely trigger a move toward 146. On the flip side, a break above 149 yen could open the path toward the next key resistance at 151.
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