USD/JPY: Markets are selling rallies – OCBC

This morning, Trump announced he reached a trade deal with Japan, with tariffs on Japanese imports set at 15% while Japan will invest $550bn into the US. Pair was last at 146.43, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Bullish momentum on daily chart has faded

"Trump said the deal will create 'hundreds of thousands of jobs'. He also indicated that Japan will 'open their country to trade including cars and trucks, rice and certain other agricultural products, and other things.' There was some knee jerk reaction on USDJPY in response to the deal and just when the pair seemed steady near its 10-11 day low, it traded higher to 147 levels, in reaction to news that PM Ishiba will announce resignation by end-August."

"On one hand, an unwinding of pre-election hedges weighed on USD/JPY after election outcome but on the other hand, some perceived USD/JPY as a compelling carry trade, given expectations of a potential delay in BoJ normalisation. We acknowledged that a carry trade may be appealing but it can erode if USD sell-off returns in a big way."

"With tariff uncertainty out of the way for Japan, we keep our eyes peeled on 2 risks going forward for USD/JPY: 1/ political risks - LDP leadership transition as there was report that PM Ishiba will announce resignation by end-Aug; 2/ if there is any changes to credit rating, dependent on fiscal health. Bullish momentum on daily chart faded while decline in RSI moderated. Support at 146.20 (21 DMA), 145.70 (100 DMA). Resistance at 147.15 (38.2% fibo), 149.40/70 levels (200 DMA, 50% fibo retracement of 2025 high to low)."