JPY bulls should be cautious about the US-Japan trade talks – DBS

Japan pushes back on US tariff demands, citing economic harm and insisting on separate FX talks, DBS' FX strategist Philip Wee reports.

Trump joins Japan talks, tariffs and Yen in focus

"US President Donald Trump has inserted himself into the US-Japan trade negotiations over April 16-18. Trump’s involvement underscored the high stakes and his desire to validate his tariff strategy to achieve trade fairness and reduce deficits. In the discussions, Trump emphasized tariffs, military cost-sharing, and broader trade fairness."

"Describing the US tariffs as a national crisis, Japan Prime Minister Shigeru Ishiba told parliament that “haste makes waste,” indicating no rush to reach a deal by making big concessions. Tokyo was also resistant to the US request to include the JPY in the talks, which it preferred to address in separate discussions between their finance ministers. Japan advocated removing additional tariffs such as the 25% duty on autos, auto parts, steel and aluminium, highlighting their detrimental impact on domestic industries and company profits."

"The Nikkei 225 Index fell 19.4% to 30793 between March 26 and April 7 before recovering to 34087. The OIS futures do not expect the Bank of Japan to deliver more rate hikes in 2025; the 10Y JGB yield fell to 1.29% from its 1.59% peak in late March. Having fallen sharply from its 159 high in January, USD/JPY is approaching the 140-support level held at the end of 2023 and September 2024."