Global markets are shaken today. President Donald Trump has ignited fresh trade wars. His administration delivered grim letters to key allies. Japan faces a punishing 25% tariff on all exports to America, starting sharply on August 1st. This move directly targets Japan’s vital auto and tech sectors. Following this, the Japanese Yen is tumbling against the surging US dollar. Investors fear prolonged economic friction between the allies.
Trump and Tariffs
Trump personally announced the tariffs via Truth Social. Letters went to Japan, South Korea, and others this Monday. Japan and South Korea face a 25% levy on all goods. Myanmar and Laos face even steeper 40% duties. South Africa received a 30% tariff notice. Trump declared these nations’ trade “unfortunately, far from Reciprocal.” He explicitly warned against retaliatory hikes. Any reciprocal increase by Japan would face matching US duties.
This threat specifically targets Japan’s auto industry. Furthermore, Trump cautioned against transhipment tricks to evade tariffs. These could happen if nations revise trade policies favourably. The letters confirm failed private negotiations. Trump unilaterally set these rates himself. White House Press Secretary Karoline Leavitt defended this. She called it creating “tailor-made trade plans.”
Trump insists that the goal remains to revitalize US manufacturing. These tariffs follow his April “Liberation Day” 10% baseline. That measure triggered market panic. This was followed by Trump pausing it for 90 days of talks. This grace period ends today, July 9th. Progress has been minimal, frustrating Trump. Only deals between Britain and Vietnam emerged. A temporary arrangement with China also occurred. Now, the August 1st deadline looms large. Treasury Secretary Scott Bessent confirmed this start date. It allows slightly more negotiation time.
Japan Vows No Easy Concessions
Japan’s response was swift and firm. Prime Minister Shigeru Ishiba labelled the tariffs “deeply regrettable.” He emphasised ongoing “earnest and sincere discussions.” Nevertheless, Ishiba declared Japan “won’t easily compromise.” This stance reflects deep domestic political pressure
Japan holds a national election on July 20th. Polls show voters strongly oppose US trade concessions. Essentially, Ishiba demands that any deal slash auto tariffs. Japan’s chief negotiator, Ryosei Akazawa, echoed this. “There’s no point striking a deal without agreement on automobile tariffs,” Akazawa stated Tuesday. He urged building trust through sincere dialogue. This breakdown surprises many observers. Earlier relations seemed strong. Ishiba met Trump at the White House in February. Japan pledged major US investment then. That February warmth feels distant now. Trump recently called Japan “spoiled.” He complained about Japanese car and rice sales. “They had their way for many decades,” Trump asserted Monday. “They just wanted fairness… they should take it or leave it.” Japan initially hoped for smoother talks.
Former PM Shinzo Abe handled Trump well previously. Abe secured a trade deal and auto tariff promises. Current officials misjudged Trump’s consistency, experts say. “Trump’s thinking really hasn’t changed,” stated Glen S. Fukushima, a former US trade official. He noted Trump’s Japan car complaints date back decades. On the other hand, existing US auto tariffs already hurt Japan. May saw Japanese exports to the US plunge 11%. Transport equipment exports fell 8.2% specifically. To counter this, the Bank of Japan halved its 2025 growth forecast. Automakers warn of billions in lost profits. Yet, Ishiba remains resolute. “We have continued rigorous negotiations,” he affirmed. Japan seeks only to “protect what should be protected.”
Japanese Yen Weakens
The tariff news immediately battered the yen. The USD/JPY pair surged 1.08% on Monday in anticipation of tariffs. It climbed firmly towards the 147.00 resistance level. Markets clearly see the tariffs harming Japan’s export-reliant economy. Reduced US demand poses a severe threat. Japan’s already fragile outlook worsens.
Technically, USD/JPY eyes the 147 Fibonacci level. Breaking this could propel it towards 149. The May peak near 148.65 is the next target. Potentially, the psychologically key 150.00 level. The Relative Strength Index (RSI) is near 61, which signals strong bullish pressure. This suggests further Yen weakness is plausible. In contrast, support lies near 144.00. A break below targets the 50-day SMA at 144.7.
Source: CME FedWatch
Interest rate divergence amplifies the Yen’s pain. The Bank of Japan maintains ultra-low rates near 0.5%. The Federal Reserve holds rates at 4.25%-4.50%. This gap heavily favours the US dollar. The market focus is now shifting to the FOMC Minutes. These minutes release Wednesday. They offer crucial insight into future Fed rate cuts. Markets currently price a 62.9% chance of a September cut. Any shift in this expectation could trigger significant volatility. A hawkish Fed tilt would likely boost USD/JPY further and a dovish signal might offer the Yen a brief breather.
Uncertain Path Ahead for Trade and Currency
The next three weeks promise intense negotiation. Trump demands revised trade terms before August 1st. Japan stands firm on protecting its auto industry. This clash creates immense uncertainty for markets.
The Yen remains acutely sensitive to trade headlines. Further escalations could push USD/JPY significantly higher. Any hint of compromise might offer relief. Investors globally watch this high-stakes standoff. The outcome will shape not just US-Japan relations but also broader global trade flows. Moreover, currency markets worldwide feel the ripple effects. The path forward remains fraught with economic risk. Both nations now navigate a delicate diplomatic tightrope. The world waits to see who will blink first.
Written By Fazal Ul Vahab C H
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
