The US-Japan tariffs may be escalated. Is the dove-hawk war between the Bank of Japan and the Federal Reserve imminent?
2025-08-07 17:18:54
During the European session on Thursday (August 7), the USD/JPY pair rebounded after hitting a low, currently trading around 147.23, down -0.09%. Fed officials released dovish guidance during the session, and Trump stated that he would select a "temporary" candidate to fill the Fed governor vacancy left by Kugler for the remainder of his term. As a result, the USD/JPY pair briefly dipped to 146.69, approaching its weekly low of 146.61.
Meanwhile, on Thursday (August 7), the Asahi Shimbun quoted White House officials as saying that US President Trump may impose an additional 15% tariff on all Japanese imports without applying for exemptions for products that already have tariffs exceeding 15%.
This, coupled with uncertainty about the timing of the Bank of Japan's interest rate hikes and generally positive market risk sentiment, has weakened the appeal of the safe-haven yen. This situation needs to be examined in the context of Japan's recent political and economic context.
The ruling Liberal Democratic Party lost the upper house election on July 20, and the opposition called for increased spending and tax cuts, which raised market concerns about Japan's fiscal health; and data released on Wednesday showed that Japan's real wages fell for the sixth consecutive month in June, further exacerbating concerns about a consumption-led recovery - these factors all suggest that the Bank of Japan's interest rate hike prospects may be delayed, suppressing the yen.
However, the Bank of Japan has repeatedly stated that if economic growth and inflation are in line with expectations, there is still a possibility of further interest rate hikes before the end of this year. This has made yen bears dare not act rashly and has also provided some support for the US dollar against the yen.
The other side of the exchange rate trend comes from the fluctuation of the US dollar and the policy expectations of the Federal Reserve. The US dollar rebounded slightly from the low of more than a week hit on Wednesday, pushing the USD/JPY exchange rate back above the mid-147.00 level in the past hour.
However, the dollar's rebound space may be limited: the US dollar index fell to a one-week low on Wednesday as the market expects the Federal Reserve to cut interest rates more times this year than previously expected; the July US non-farm payroll report showed a significant deterioration in labor market conditions, and the US ISM services PMI data released on Tuesday also highlighted the continued drag on the economy from Trump's unstable trade policies. This has strengthened the market's expectations that the Federal Reserve will resume the interest rate cut cycle in September (at least two rate cuts of 25 basis points each are expected by the end of the year), which in turn will put pressure on US Treasury yields and the US dollar.
The diverging policy outlooks of the Bank of Japan and the Federal Reserve have provided support for the yen. While the Fed is widely expected to lower borrowing costs and cut interest rates in September, uncertainty about the Bank of Japan's potential rate hikes remains lingering. This divergence is a reminder for traders bearish on the yen to exercise caution and suggests the need to wait for bearish momentum to fade before a significant reversal in the USD/JPY pair occurs.
From a technical perspective , this week the USD/JPY pair rebounded from the 200-day moving average (around 146.60, the weekly low) in the 4-hour chart and subsequently rose, which is beneficial to bulls.
However, oscillators on the chart have yet to confirm the bullish outlook, and prices have so far struggled to break through the 38.2% Fibonacci retracement level of the rise from the July monthly low. Therefore, caution is still necessary until prices break through the 147.80-147.85 area on a sustainable basis.
If it breaks through this area, the exchange rate may stand above the 148.00 integer mark and further climb to the 148.45-148.50 area, or even extend to around 149.00 (23.6% Fibonacci retracement level); conversely, the low point of the Asian trading session (around 147.15 area) and the 147.00 mark provide immediate support, followed by the dense trading area of 146.75 (200SMA and 50% Fibonacci retracement level on the 4-hour chart). If this point is decisively broken, it may open a deeper decline, and the exchange rate may accelerate the test of the level below 146.00 (61.8% Fibonacci retracement level), or even touch the psychological mark of 145.00.
In the short term, traders will focus on the release of weekly US initial jobless claims data later in the North American trading session, as well as speeches by Federal Open Market Committee (FOMC) members - these factors, along with trade-related headlines, will influence the short-term direction of USD/JPY.
(USD/JPY 4-hour chart, source: Yihuitong)
Beijing time: 17:15, USD/JPY is trading at 147.21/20
Meanwhile, on Thursday (August 7), the Asahi Shimbun quoted White House officials as saying that US President Trump may impose an additional 15% tariff on all Japanese imports without applying for exemptions for products that already have tariffs exceeding 15%.
This, coupled with uncertainty about the timing of the Bank of Japan's interest rate hikes and generally positive market risk sentiment, has weakened the appeal of the safe-haven yen. This situation needs to be examined in the context of Japan's recent political and economic context.
The ruling Liberal Democratic Party lost the upper house election on July 20, and the opposition called for increased spending and tax cuts, which raised market concerns about Japan's fiscal health; and data released on Wednesday showed that Japan's real wages fell for the sixth consecutive month in June, further exacerbating concerns about a consumption-led recovery - these factors all suggest that the Bank of Japan's interest rate hike prospects may be delayed, suppressing the yen.
However, the Bank of Japan has repeatedly stated that if economic growth and inflation are in line with expectations, there is still a possibility of further interest rate hikes before the end of this year. This has made yen bears dare not act rashly and has also provided some support for the US dollar against the yen.
The other side of the exchange rate trend comes from the fluctuation of the US dollar and the policy expectations of the Federal Reserve. The US dollar rebounded slightly from the low of more than a week hit on Wednesday, pushing the USD/JPY exchange rate back above the mid-147.00 level in the past hour.
However, the dollar's rebound space may be limited: the US dollar index fell to a one-week low on Wednesday as the market expects the Federal Reserve to cut interest rates more times this year than previously expected; the July US non-farm payroll report showed a significant deterioration in labor market conditions, and the US ISM services PMI data released on Tuesday also highlighted the continued drag on the economy from Trump's unstable trade policies. This has strengthened the market's expectations that the Federal Reserve will resume the interest rate cut cycle in September (at least two rate cuts of 25 basis points each are expected by the end of the year), which in turn will put pressure on US Treasury yields and the US dollar.
The diverging policy outlooks of the Bank of Japan and the Federal Reserve have provided support for the yen. While the Fed is widely expected to lower borrowing costs and cut interest rates in September, uncertainty about the Bank of Japan's potential rate hikes remains lingering. This divergence is a reminder for traders bearish on the yen to exercise caution and suggests the need to wait for bearish momentum to fade before a significant reversal in the USD/JPY pair occurs.
From a technical perspective , this week the USD/JPY pair rebounded from the 200-day moving average (around 146.60, the weekly low) in the 4-hour chart and subsequently rose, which is beneficial to bulls.
However, oscillators on the chart have yet to confirm the bullish outlook, and prices have so far struggled to break through the 38.2% Fibonacci retracement level of the rise from the July monthly low. Therefore, caution is still necessary until prices break through the 147.80-147.85 area on a sustainable basis.
If it breaks through this area, the exchange rate may stand above the 148.00 integer mark and further climb to the 148.45-148.50 area, or even extend to around 149.00 (23.6% Fibonacci retracement level); conversely, the low point of the Asian trading session (around 147.15 area) and the 147.00 mark provide immediate support, followed by the dense trading area of 146.75 (200SMA and 50% Fibonacci retracement level on the 4-hour chart). If this point is decisively broken, it may open a deeper decline, and the exchange rate may accelerate the test of the level below 146.00 (61.8% Fibonacci retracement level), or even touch the psychological mark of 145.00.
In the short term, traders will focus on the release of weekly US initial jobless claims data later in the North American trading session, as well as speeches by Federal Open Market Committee (FOMC) members - these factors, along with trade-related headlines, will influence the short-term direction of USD/JPY.
(USD/JPY 4-hour chart, source: Yihuitong)
Beijing time: 17:15, USD/JPY is trading at 147.21/20
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