Trade tensions escalate as the US dollar rises to over a two-week high against the Japanese yen.

After announcing a 25% tariff on Japan and other trade partners, President Donald Trump promised to implement more trade-related policies. As a result of this news, the USD/JPY exchange rate rose to its highest point in over two weeks on Wednesday. Following Trump's threat to impose tariffs starting on August 1st, the USD rose against major currencies on Tuesday. However, Trump later stated that he would be willing to extend the tariff deadline if countries propose solutions. Trump announced on social media that he would release a notice on Wednesday related to trade with at least 7 countries, but did not disclose any details. He also threatened to impose a 50% tariff on imported copper and stated that he would soon impose taxes on semiconductors and pharmaceuticals. Despite recent gains in the US dollar index, the index has fallen over 6% since Trump announced "equal tariffs" on April 2nd. The announcement of equal tariffs sparked market sell-offs, but most measures were later postponed to allow time for bilateral trade negotiations. Ray Attrill, FX Strategy Director at the National Australia Bank, stated that the market's second reaction to the announcement of equal tariffs actually constituted a negative factor for the USD. This is because the market believes that the damage these tariffs will cause to the US will be similar or even more severe than in other regions. US-Japan trade negotiations at an impasse The USD/JPY exchange rate rose 0.1% to 146.75, reaching 147.19 before falling. This week, it has risen by 1.5%, marking the largest weekly gain since mid-December last year. Among the US's major trading partners, hopes for reaching an agreement with export-dependent Japan seem bleak. As time goes on, the yen has also suffered. Multiple rounds of negotiations have failed to make a breakthrough, with Japanese policymakers increasingly focused on the upcoming key elections. As speculation grows that the opposition party will gain seats in the Japanese Senate and push for more fiscal stimulus measures, Japanese government bond prices have fallen this week, causing long-term yields to surge. US Treasury Secretary Scott Bennett has been a key figure in trade negotiations with Japan, and it is expected that he will attend the 2025 World Expo in Osaka later this month, potentially opening the doors to more negotiations. IG analyst Tony Sycamore said, "Negotiations appear to have hit a deadlock over Japan's protection measures for rice markets, and it's hard to see Japan backing down on this issue. The rise in US bond yields for the fifth consecutive day, as well as the significant increase in Japanese bond yields due to fiscal concerns before the July 20th Japanese election, have also supported the upward trend of the USD/JPY." EU may be exempt from US tariffs The EUR/USD exchange rate remained steady at 1.171, as markets cautiously weighed the possibility that the EU will not receive a tariff letter and may be exempt from the 10% US base tariffs. The minutes of the Federal Reserve's monetary policy meeting will be released on Wednesday, providing clear guidance on the Fed's policy outlook. Antje Praefcke, FX analyst at Deutsche Bank, believes that another reason for the strong EUR/USD exchange rate is that the market has digested the US-EU interest rate differential. He said, "The market currently expects the Fed to cut interest rates nearly twice before the end of the year, but the ECB will only cut rates once."