Japan’s currency traded near a one-year low against the euro as polls showed Prime Minister Shigeru Ishiba’s coalition was in danger of losing its majority in the upper house.
The US dollar staged a meagre recovery after US President Donald Trump denied he was planning to fire Federal Reserve (Fed) chair Jerome Powell.
Japan’s top trade negotiator held a phone call with US commerce secretary Howard Lutnick on tariffs, as data showed the Asian nation’s exports were starting to feel the impact of tariffs, with shipments down for a second straight month.
“With the elections, the tariffs, the overall relationship between Japan and the US, I do think there is some reason to sell the yen,” said Bart Wakabayashi, Tokyo branch manager at State Street.
“The election seems to be a key point in the foreign view of the currency at the moment,” Wakabayashi said.
Investors remain focused on tariffs ahead of an Aug 1 deadline when many trading partners face higher trade levies.
Japan failed to clinch a deal with the US before the July 9 expiration of the temporary pause on the country-specific tariffs.
Overseas shipments from the world’s fourth-largest economy dropped 0.5% in June year-on-year in value terms, data showed today.
The nation’s chief trade negotiator Ryosei Akazawa held a 45-minute phone call with Lutnick following comments by Trump that the US would likely keep 25% tariffs on Japan unless the countries agree on a trade deal.
Domestic media reported that Prime Minister Ishiba is arranging to meet US treasury secretary Scott Bessent in Tokyo on Friday, where the two sides may discuss trade.
Ishiba must also contend with an election on Sunday, where polls are signalling a poor showing for his coalition, which could heighten calls for the government to boost spending and cut taxes.
The greenback rebounded after declines against the yen and euro yesterday on investor worries that removing the Fed chief before his term ends in May 2026 would undermine faith in the US financial system.
“A more dovish Fed could lead to a return of inflation and negative real yields on Treasuries,” said Mahjabeen Zaman, head of foreign exchange research at ANZ.
“If that comes to fruition, you’re going to see a much weaker dollar than we’re already expecting,” Zaman said in an ANZ podcast.
“Such an event, if that even does happen, it will raise questions for Fed independence and credibility, so I think it’s only going to be an increase in volatility,” he added.
Trump has railed against Powell for months for not easing rates, which he says should be at 1% or lower.
Bloomberg reported that the president is likely to fire Powell soon, and a source told Reuters that Trump polled some Republican lawmakers on firing Powell and received a positive response.
Trump said that the reports were not true.
“I don’t rule out anything, but I think it’s highly unlikely unless he has to leave for fraud,” Trump said, a reference to recent White House and Republican lawmaker criticism of cost overruns in the US$2.5 billion renovation of the Fed’s historic headquarters in Washington.
The yen slid 0.4% to ¥148.48 to the dollar, trimming a 0.7% advance in the previous session.
The Japanese currency weakened 0.3% to 172.51 per euro, after touching 173.24 yesterday, the weakest since July 12, 2024.
The dollar index, which measures the greenback against major peers, rose 0.2% to 98.503 after a 0.3% slide yesterday.
The euro stood at US$1.1620, down 0.2%, while sterling edged 0.2% lower to US$1.3395.
The Australian dollar slid after jobs data badly missed forecasts and unemployment hit highs not seen since late 2021.
The Aussie fetched US$0.6478, down 0.8%. New Zealand’s kiwi dollar lost 0.5% to US$0.5916.