USD/JPY edges lower as US-Japan trade deal supports flows to the Yen

• USD/JPY extends losses as Japanese trade prospects overshadow interest rate differentials.
• US-Japan trade agreement eases tensions and increases flows into the Yen.
• USD/JPY finds temporary support above 146.00 as momentum turns neutral.

USD/JPY is experiencing its third consecutive day of losses on Wednesday as traders reassess positioning in the wake of a newly announced trade agreement between the US and Japan.

At the time of writing, the pair is trading slightly above the 146.00 mark as the Yen finds renewed support despite interest rate differentials remaining in favour of the US Dollar.

US-Japan trade agreement eases tensions and increases flows into the Yen

US President Donald Trump unveiled what he called a "massive deal" with Japan on Wednesday, describing it as a major breakthrough in repairing strained trade relations.

A key component of the agreement includes reducing proposed tariffs on Japanese goods from 25% to 15%, with a specific focus on the automotive sector, a vital part of Japan's export economy. The move is aimed at easing tensions and preventing a broader trade conflict between the two allies.

In return, Japan has committed to a $550 billion investment package into the US economy.

This includes funding for projects in infrastructure, semiconductor manufacturing, and supply chain development, areas considered strategically important.

The deal also improves market access for US exporters, particularly in agriculture and automotives, with several regulatory hurdles expected to be removed.

While the deal is notable for its scale, its timing is just as significant. With trade friction between the US and the European Union escalating, a strengthened alliance with Japan gives Washington a key strategic partner in the Indo-Pacific region.

Over time, this could shift capital flows and currency demand, with the Yen potentially benefiting from improved investor confidence and a stronger trade surplus outlook.

USD/JPY finds temporary support above 146.00 as momentum turns neutral

From a technical perspective, USD/JPY has pulled back sharply after failing to sustain a move above the 38.2% Fibonacci retracement of the January-to-April decline, marked at 147.14.

The pair is now shifting toward the next area of support, currently anchored by the July 10 low at 145.76 and the 50-day Simple Moving Average (SMA) at 145.16.

A confirmed break below this 145.16-145.76 support zone would open the door toward 144.37, which marks the 23.6% Fibo retracement and could act as the next downside target.

USD/JPY daily chart

To the upside, resistance now sits at 147.14, followed by the 50% Fibo level at 149.38.

A return above these levels would be required to re-establish bullish momentum.

The Relative Strength Index (RSI) is currently sitting near 50, indicating neutral momentum.

Technically, USD/JPY remains vulnerable in the short term unless bulls can defend the 145.00-145.75 zone. A breakdown below this area would likely invite deeper losses, while a recovery above 147.14 is needed to restore upward momentum.