The USD/JPY has surged past the 146.00 mark as trade tensions between the United States and Japan escalate, bolstered by rising US Treasury yields. On Monday, the US Dollar (USD) gained significant traction against the safe-haven Japanese Yen (JPY), driven by these escalating trade hostilities and macroeconomic factors. At the time of writing, USD/JPY has risen by more than 1%, trading above the 146.00 psychological level.
This increase has been fueled by Japan’s preparation for a 25% tariff on all Japanese imports into the United States starting August 1. The announcement came after US President Donald Trump posted a letter on his Truth Social account addressed to Japanese Prime Minister Ishiba Shigeru, informing him of the impending tariffs. The broader context of rising US Treasury yields has also contributed to the strength of the US Dollar.
Investors are favoring the USD amidst an environment of growing trade uncertainty and potential economic shifts. Japan’s yen remains an attractive trade option despite recent reductions in investor positions. As of July 3, 2025, investors have cut their long yen positions by 25% since the end of April.
This shift can be attributed to the Bank of Japan’s (BOJ) cautious stance on raising interest rates, which has left the yen in a state of limbo for the time being. Even with these cutbacks, investors still hold net long positions in the yen worth $11.41 billion, albeit a significant decrease from the record $15.7 billion at the end of April. Yen is likely to strengthen in the future, but short-term challenges will persist.
The cumulative percent change year-to-date in foreign currency value against the US dollar shows that the yen’s performance is under close scrutiny.
Trump’s tariffs impact yen positions
The USD/JPY currency pair is nearing fresh highs, driven by the recent announcement of new tariffs and the diverging policies of central banks in the U.S. and Japan.
The market is closely monitoring fluctuations, especially amid the tariff pressures imposed by the Trump administration. Recently, the administration imposed a 25% tariff on imports from Japan and South Korea, citing insufficient progress in trade discussions. This move has kept the USD/JPY exchange rate within its usual range, with market participants watching for updates on the negotiations and the reactions from the Bank of Japan (BOJ).
The BOJ has maintained a cautious approach this year, opting not to change interest rates in its recent meetings due to the ongoing uncertainty around the impact of tariffs on the Japanese economy. Inflation has remained above the target, highlighted by a significant increase in rice prices, a staple in Japan. If the tariffs persist, the BOJ faces a dilemma: higher tariffs could drive inflation further, supporting the case for raising interest rates, but they could also dampen economic growth, making rate hikes more challenging.
Similarly, the U.S. Federal Reserve is adopting a wait-and-see stance, delaying further interest rate cuts as it evaluates the impact of tariffs. The next potential rate cut in the U.S. is anticipated in September, with a current likelihood of 57% for a 25-basis-point reduction. The upcoming key data release on inflation will be crucial in shaping the Fed’s next moves.
Despite some short-term dollar weakness in early July, the USD/JPY pair remains in a consolidation phase. The next target for dollar buyers is around 148 yen per dollar if further dollar weakness persists. Key support levels are at 145 and 144 yen, and a fall below 142 yen would suggest the current upward trend might reverse.
As the situation unfolds, traders and investors will stay tuned for developments in trade talks and central bank decisions, which are critical in navigating the market’s unpredictable landscape.
