The US-Japan trade negotiations have entered the deep water zone! In the recently concluded treasury secretary talks last week, Japan seemingly dodged direct pressure from the US on yen appreciation. However, upon closer examination of both sides' statements, the exchange rate issue and the Bank of Japan's policies remain as the "Sword of Damocles" hanging over their heads. With the upcoming second round of negotiations, this game concerning the economic lifelines of both countries is seeing underlying currents surge.

‌The “Language Art” Behind the Talks‌

Japanese Finance Minister Toshimitsu Motegi insists that "no exchange rate targets were discussed," but reveals that there will be "close dialogue on exchange rate issues" in trade negotiations.

The US did not directly accuse Japan of manipulating the exchange rate, but Donald Trump has long held the view that the yen is "deliberately undervalued."

Experts from the NLI Research Institute warn: If trade negotiations are hindered, the exchange rate issue will immediately come to the surface.

‌The Tightrope Walker Dilemma of the Bank of Japan‌

Motegi proactively explained Japan's "wage increases" and "price situation" to the US, essentially defending monetary policy.

Sources reveal: The Bank of Japan's slow pace of interest rate hikes has become a key focus of the US.

Economists point out: Wage growth may be the key to breaking the deadlock, satisfying US demands while paving the way for interest rate hikes.

‌The Upcoming Ultimate Gamble‌

Hiromasa Akiba, Japan's Trade Representative, will travel to the US for the second round of negotiations.

Experts from Mitsubishi UFJ interpret: A "win-win-win" chain of wages-exchange rate-interest rate hikes is forming.

Markets are concerned: If negotiations collapse, the US may revisit accusations of Japan being a "currency manipulator."

‌Summary‌

This US-Japan trade game has evolved into a delicate psychological warfare. While striving to maintain the independence of its monetary policy, Japan must carefully navigate the implicit pressure from the US. As negotiations enter a critical stage, every interest rate decision by the Bank of Japan could become the fuse that ignites the market. Investors should be vigilant: Once the US revisits the exchange rate issue, the yen's exchange rate could experience violent fluctuations, impacting global financial markets.

As Japan may have dodged pressure from the US to appreciate the yen, the USD/JPY pair rebounded from lows last week, holding above the key 140 level and closing near 143.72. with a weekly gain of about 1.14%. On Monday in the Asian session, the exchange rate weakened slightly and is currently trading near 143.59. still under pressure from the 144 level. Japan is seen as the frontrunner in reaching an agreement, and the second round of talks will be held this week, which investors need to focus on. Resistance levels to watch above include 144.00. 144.21-36. and 144.60. while support levels to watch below include 143.20 and near 142.90.

‌Note‌: The above translations are based on the provided context and may require adjustments to align with professional financial terminology or specific market conditions.

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