JPY at a crossroads: How tariffs and policy shifts could reshape Forex

The Japanese yen is once again in the spotlight, caught in a storm of trade tensions and monetary policy uncertainty. With the global economy teetering on the edge of major shifts, forex traders are on high alert. The stakes are high-escalating trade policies could trigger massive market volatility and create unique trading opportunities. Let’s dive in.

JPY stuck in a holding pattern

Despite flashes of strength, the yen has struggled to capitalize on gains against the USD. Market uncertainty is keeping traders frozen, waiting for clear policy direction before making bold moves. This kind of indecision can be a precursor to explosive market action.

Japan’s economic predicament is getting trickier. If new tariffs hit Japanese exports hard, the Bank of Japan (BoJ) may have to rethink its tightening cycle to protect economic stability. But inflation data suggests Japan needs higher rates to keep price pressures in check. The result? A tough balancing act for policymakers.

Source: YCharts

Recent reports suggest that Trump’s latest trade restrictions won’t be limited to specific countries with trade imbalances but will apply broadly. That’s particularly concerning for Japan, which relies heavily on exports and is vulnerable to global trade disruptions.

EUR/USD holding steady as markets await trade policy shifts

The EUR/USD remains stuck near 1.0800 as markets brace for President Trump’s long-anticipated tariff announcement. Investors have been kept in suspense, with Trump delaying the decision four times in just 71 days. No one is sure what’s coming next.

Adding to the tension, the US ISM Manufacturing PMI for March sank to 49.0 from 50.3, indicating contraction as businesses hunker down ahead of the expected tariff shake-up. The Manufacturing New Orders Index also fell sharply to a two-year low of 45.2, signalling growing economic concerns.

Source: ISM, BEA/Haver analytics

The Manufacturing New Orders Index also fell sharply to a two-year low of 45.2, signalling growing economic concerns. 

Source: ISM, BEA/Haver analytics

With businesses already reacting to the anticipated tariffs, uncertainty is gripping the market.

The battle of central banks

A major shift in global monetary policy is unfolding. While the BoJ is expected to continue raising rates, the Federal Reserve and other major central banks are tilting toward cuts. Normally, this rate divergence would boost JPY against USD, but trade fears are clouding the outlook. The bigger question is whether trade restrictions will overwhelm monetary policy trends, shifting market sentiment in unpredictable ways.

Global economic indicators are flashing warning signals. Manufacturing contractions, rising inflation, and weaker labor market data suggest we could be entering a period of slower growth. The dreaded “stagflation” narrative-a mix of stagnant growth and high inflation—is making traders uneasy.

Adding another layer of complexity, the US Nonfarm Payrolls (NFP) report this Friday will offer the first glimpse of how the economy is responding to trade policy changes. If the labor market shows unexpected weakness, market volatility could escalate further.

Trump’s "Liberation Day" tariffs: The big market catalyst

Trump has hyped April 2 as "Liberation Day" for weeks, and his administration has confirmed that tariffs will take effect immediately following his Rose Garden announcement at 2000 GMT. Reports indicate a potential blanket 20% tariff on nearly all imports, a move that could reshape global trade dynamics overnight.

While a broad tariff hike might initially support the US dollar, analysts are more concerned about long-term economic consequences. "A 20% blanket tariff would theoretically be a net positive for the dollar, but the market is focused on whether tariffs accelerate stagflation risks in the US economy," says Chris Weston, head of research at Pepperstone.

USDJPY analysis: Outlook as tariff wars rage on

For traders, the next moves in JPY will be all about timing. Market reaction to trade policies could present incredible entry points, but patience is key. The combination of monetary policy shifts, trade uncertainty, and economic data releases makes this one of the most pivotal trading moments in recent history.

At the time of writing, the USDJPY pair is in consolidation mode. Upward pressure is limited as downward pressure also finds support. Prices remaining below the moving average, suggests that the major trend is still bearish for the pair, however RSI rising steadily just above the midline suggests that some upward pressure could be building.

Key levels to watch on the upside are $150.33 and $150.85. On the downside, the key support levels to watch are $149.32 and $148.70.

Source: Deriv MT5

Disclaimer:

The information contained within this blog article is for educational purposes only and is not intended as financial or investment advice. We recommend you do your own research before making any trading decisions.

This information is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.

The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance.