Yen Weakens as Trade Slump Deepens Tariff Pain

Key Takeaways:

*Yen is pressured by weak exports, with auto sector tariffs driving Japan’s steepest trade contraction in four years.

*Policy divergence widens as BoJ’s hawkish tone clashes with markets skeptical of rate hikes amid recession risks.

*Yen’s near-term path hinges on U.S. policy signals from Powell at Jackson Hole and evolving global risk sentiment.

Market Summary:

The Japanese Yen continued to weaken against the U.S. Dollar this week, slipping beyond the 147.5 level as disappointing trade data and persistent policy divergence weighed on sentiment. July’s export report showed a 2.6% year-on-year decline, the steepest contraction in over four years, driven largely by a 28.4% plunge in auto shipments to the U.S. following the imposition of new 15% tariffs. While the late-July trade deal averted the risk of harsher 25% duties, the implemented levy has already begun to disrupt one of Japan’s most critical export sectors, fueling concerns that the economy could slide toward recession.

This weakening economic backdrop stands in stark contrast to the Bank of Japan’s cautiously hawkish rhetoric. Governor Kazuo Ueda has maintained the possibility of further rate hikes if growth and inflation conditions align with the bank’s outlook, but markets are increasingly doubtful. The combination of soft external demand, trade headwinds, and domestic political uncertainty following the ruling party’s upper house election loss has led investors to scale back expectations for imminent policy tightening. Instead, the Yen has become more sensitive to external catalysts, particularly U.S. monetary policy.

Looking ahead, the currency’s trajectory remains closely tied to the Federal Reserve’s stance, with investors focused on Fed Chair Jerome Powell’s upcoming speech at Jackson Hole. Any shift in U.S. rate expectations could exacerbate or alleviate the Yen’s downside pressure, leaving the currency vulnerable until Japan’s own growth story finds firmer footing.

Technical Analysis 

GBPJPY, H4: 

GBP/JPY has slipped below the 199.55 support level, with the pair now trading near 198.77 after failing to hold within its recent consolidation box. The rejection from the 199.55 resistance zone has shifted momentum back toward the downside, increasing the risk of a deeper pullback if bearish pressure persists.

Technical indicators confirm weakening momentum. The Relative Strength Index (RSI) has dropped to 40, edging closer to oversold territory and reflecting growing selling pressure. Meanwhile, the MACD has completed a bearish crossover, with the histogram turning negative, signaling a shift in momentum in favor of sellers. 

On the downside, immediate support rests at 197.57, followed by 197.05 and the stronger 195.97 zone, which has historically acted as a solid demand base. A decisive break below 195.97 would expose GBP/JPY to further downside risk, potentially unwinding part of its broader uptrend. 

Resistance level: 199.55, 201.00

Support level: 197.57, 197.05