Japanese Yen Weakens as Leaders Finalize Partial US Trade Deal

The Japanese yen is weakening midweek after reports that Tokyo is set to finalize a partial trade agreement with the US. While this is bullish for the world’s third-largest economy, the yen is still reeling from the latest trade data that is boosting recession fears and might prompt the government to postpone its long-proposed national sales tax.

On the eve of the G7 Summit meeting in France, American and Japanese officials, including Economy Minister Toshimitsu Motegi and Trade Representative Robert Lighthizer, are meeting in Washington to continue imperative trade talks. It is widely expected that both sides will agree to a so-called early harvest or mini-deal before signing a comprehensive trade package.
This partial trade agreement is expected to involve opening up Japan’s agricultural market to US goods in exchange for reductions in US industrial tariffs. Tokyo is also looking to gain some immunity or exemptions from future tariffs on automotive imports, which President Donald Trump has warned about implementing later this year due to natural security concerns.
Analysts say that a rushed trade agreement contradicts Japan’s official stance that a partial deal is unacceptable to authorities. That said, a more thorough US-Japan trade deal will be pushed to a later date.
Recently, the Ministry of Finance published trade data that dragged down business and consumer confidence. According to the figures, July exports slipped 1.6% from the same time a year ago, lower than the 2.2% forecast by economists. The decline was driven by a decrease in shipments of car parts and semiconductor production equipment.
But the biggest development has been Japanese exports to China, which plunged 9.3% year-on-year last month. This represents the fifth consecutive month of declines. The decrease was driven by a 35% drop in car parts, a 31.5% slide in semiconductor production equipment, and a 19% dip in electronics parts.
Meanwhile, as the rest of the world eases monetary policy, the Bank of Japan (BOJ) is expected to lead the way in order to prevent a steep economic downturn. Interest rates are already in subzero territory.
The USD/JPY currency pair climbed 0.39% to 106.64, from an opening of 106.22, at 20:04 GMT on Wednesday. The EUR/JPY jumped 0.27% to 118.19, from an opening of 118.19.

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