USDJPY dips to 144.965 on breakthrough trade deal

On July 24, 2025, the USDJPY pair started trading at 146.480 before declining as a newly agreed-upon trade deal between the US and Japan boosted confidence in the yen. The agreement serves to reduce tariffs levied by the United States on exports from Asia, with a particular emphasis on the automotive sector, from 25% to 15%. In return, Japan promised to invest $550 billion in the US economy. These developments mitigated trade disputes, boosted capital flowing into the yen, and strengthened beliefs that the Bank of Japan (BoJ) might tighten monetary policy sooner than expected, even with the greenback's ongoing interest rate advantage. 

BoJ Deputy Governor Shinichi Uchida said the trade deal makes the economy less uncertain, which might let the government change its policies sooner. Markets are now pricing in a 15-basis-point rate hike by October and one more 20-basis-point increase by December. Japan’s persistent inflation and improved business conditions following the trade agreement support the case for higher borrowing costs. Meanwhile, the Federal Reserve is likely to adopt a cautious stance at its upcoming meeting on July 31, as the central bank assesses the economic implications of recent elections and potential fiscal risks.

The yen gained support from an improving global risk appetite. Progress in US-EU trade talks, including discussions on a proposed 15% duty on European goods, reduced demand for the dollar as a safe-haven asset.

However, political uncertainty in Japan has tempered the yen’s rally. The ruling coalition’s defeat in the July 21 election and the subsequent rumors, later denied, of Prime Minister Shigeru Ishiba’s resignation have raised concerns about fiscal stability. Investors are worried that a potential leadership change could slow economic reforms or lead to higher government spending, which would impair confidence in the Asian currency.

Without any unfavorable reports, the yen might appreciate, resulting in USDJPY falling to 145 or even lower. If Japan experiences a severe political downturn or trade disputes resume, the Asian currency would be under strain once again. Still, the chances of such events have already been minimized by the existing tariff cuts and Japan’s investment commitments. 

USDJPY has trended lower on the 4-hour timeframe since reaching a recent peak of 149.178, suggesting weakening bullish momentum. The Stochastic Oscillator (5, 3, 3) remains outside of overbought territory, thus indicating room for further downside. The next key support level stands at 145.750, the July 10 low, with a break below potentially pushing the pair toward 144.965.

Trading recommendation:

We recommend fixing short positions from current levels with Take Profit at 144.965 and Stop Loss at 146.60.