USD/JPY Edges Higher Toward 147.50 Amid Japan’s Political Shifts and Trade Deal Focus

The USD/JPY pair advanced to around 147.55 during early Tuesday trading in Asia, buoyed by a softer Japanese Yen as political uncertainty and trade negotiations take center stage.

Japan’s Prime Minister Shigeru Ishiba pledged to remain in office despite projections indicating his ruling Liberal Democratic Party (LDP) is set to lose its majority in the upper house following Sunday’s election. While markets largely anticipated the outcome, analysts such as David Chao from Invesco suggest that investor attention has now shifted toward the ongoing trade discussions between Tokyo and Washington.

Talks between the U.S. and Japan are gaining momentum, with Japan’s lead trade negotiator Ryosei Akazawa confirming on Monday that efforts are underway to reach a bilateral agreement before the looming August 1 deadline. Renewed uncertainty around tariffs, combined with domestic political tension, may continue to weigh on the Yen and support further upside in USD/JPY in the near term.

However, broader USD strength may be capped by growing expectations of a dovish turn from the Federal Reserve. Fed Governor Christopher Waller recently pointed to signs of softening in private-sector employment, reinforcing his view that a rate cut could be warranted as early as July.

Waller emphasized the importance of acting before economic conditions deteriorate further, a sentiment that aligns with market forecasts now assigning nearly a 59% probability to a rate cut in September, according to the CME FedWatch Tool.

As traders weigh U.S. monetary policy against Japanese political and trade dynamics, USD/JPY remains sensitive to headlines from both sides of the Pacific.

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