“This includes export controls, tariff suspensions, fentanyl-related measures, anti-drug cooperation, trade expansion, and US Section 301 fees.”
Takaichi-Trump Trade Talks and Yen Dynamics
The prospect of lower US duties on Chinese shipments could draw Prime Minister Takaichi’s attention. President Trump is reportedly meeting with Japan’s prime minister on Monday, October 27.
Takaichi criticized the US-Japan trade deal inked in August before being elected. While defense spending could be a key topic, the US-China trade deal could provide Takaichi an opportunity to discuss the 15% levy on Japanese goods, affecting businesses. Reports suggesting President Trump is open to further trade talks and lower tariffs on Japan could strengthen demand for the yen.
BoJ board members have raised concerns over the impact of US tariffs on the Japanese economy and have called for delays to rate hikes to assess the effect of duties on the broader economy.
Lower tariffs could lift demand for Japanese goods and raise expectations for a BoJ rate hike. For context, the S&P Global Japan Manufacturing PMI fell from 48.5 in September to 48.3 in October.
US Durable Goods Orders, Capitol Hill, and the USD/JPY Outlook
Across the Pacific, durable goods orders will be in focus later on Monday. Economists forecast durable goods orders to rise 0.3% month-on-month in September after August’s 2.9% surge.
A higher reading could signal resilient business demand. Sustained demand may boost hiring and wages, potentially fueling inflation. A higher inflation outlook could support a less dovish Fed rate path. A less dovish Fed policy stance could lift demand for the US dollar and send USD/JPY toward 155.
On the other hand, an unexpected drop in orders could lead to job cuts and slower wage growth. Job cuts and softer wage growth may curb consumer spending and dampen inflationary pressures. A softer inflation outlook would support a more dovish Fed rate path, potentially pushing USD/JPY toward 150.
While US data will influence demand for the US dollar, traders should also closely monitor developments on Capitol Hill. A prolonged US government shutdown could reinforce expectations of a more dovish Fed policy outlook. However, a Senate vote passing a stopgap funding bill could expedite the release of delayed labor market reports, potentially fueling uncertainty about a Fed rate cut in December.
USD/JPY Scenarios: Trade Headlines and Central Bank Divergence
- Bearish USD/JPY Scenario: hawkish BoJ rhetoric, weak US data, or US-Japan tariff talks could push USD/JPY toward 150.
- Bullish USD/JPY Scenario: dovish BoJ commentary, strong US data, or US-Japan tariff uncertainties could send USD/JPY toward 155.
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