US and Japan Gear Up for High-Stakes Trade Talks, with Implications for USD/JPY

As Japan and the United States gear up for crucial trade negotiations set to begin in Washington on Thursday, global markets are closely observing the proceedings. These discussions position Japan as the first major economy to engage with the current US administration following a significant tariff announcement earlier this month. The outcome of these talks could carry substantial implications for currency markets, particularly the USD/JPY pair.

Japan’s leadership has taken a resolute stance ahead of the negotiations, indicating a reluctance to offer major concessions merely to expedite an agreement. Despite the US decision to delay additional tariffs beyond a baseline 10% for most countries for 90 days, Japan appears to hold a robust negotiating position. Reports indicate that Japan will avoid using its significant holdings of US Treasuries as leverage, favoring a more calculated strategy instead. There is also an indication that Japan may be open to a moderately stronger yen, which could shape currency trends in the near term.

The yen has demonstrated notable strength this year, currently ranking as the fourth-best-performing G10 currency in 2025, behind only the Swedish krona, Swiss franc, and euro. Analysts remain confident in the yen’s ability to potentially lead the G10 currencies by year-end. However, the USD/JPY pair has recently exceeded its projected year-end target of 145, leading to considerations of forecast adjustments in the coming weeks. While short-term movements in USD/JPY may tilt in favor of the US dollar, the yen’s underlying resilience and potential to outshine its peers remain a focal point.

As the Japan-US trade talks progress, investors will be on high alert for developments that could influence the USD/JPY trajectory. Japan’s strategic and confident approach suggests that the yen may sustain its upward momentum, potentially reshaping the G10 currency landscape. For now, the stage is set for a pivotal dialogue that could redefine trade and currency dynamics between these two economic giants.