Yen volatility ahead? The potential effects of trade Policy on USD/JPY

The Japanese yen is caught in a fierce tug-of-war, and global markets are watching closely. Why? Because shifting trade policies, particularly those involving tariffs, continue to shake up the forex landscape. With major economies recalibrating their strategies, the stakes couldn’t be higher-these moves could send shockwaves through global markets, ignite massive forex volatility, and create some of the best trading opportunities we’ve seen in months. 

Let’s break it down.

Bank of Japan monetary policy is a huge factor

Despite occasional gains against the USD, the yen often struggles to build sustained momentum. Market anxiety leaves traders hesitant, waiting for policy shifts to set the tone. This kind of indecision is a breeding ground for opportunity-when traders hesitate, sharp market moves often follow.

Here’s where things get interesting: Japan is in a tough spot. According to analysts, if new tariffs or trade restrictions hit Japanese exports hard, the Bank of Japan (BoJ) may have to reconsider its monetary policy approach to protect the economy. But at the same time, Tokyo’s inflation data suggests the BoJ needs to keep tightening. It’s a classic rock-and-a-hard-place scenario.

Meanwhile, recent policy signals suggest that trade restrictions could become broader, targeting multiple economies instead of just a select few with major trade imbalances. That’s especially bad news for Japan’s export-heavy economy, which is highly sensitive to global trade disruptions.

EUR/USD in limbo as Trump’s tariffs spark market jitters

EUR/USD remains pinned near the 1.0800 level, reflecting the market’s nervous anticipation of upcoming trade policies. Traders are bracing for the long-threatened "reciprocal" tariffs announcement. The uncertainty is palpable-Trump has already delayed this decision four times in just 71 days in office, leaving investors unsure of what’s actually coming.

Adding to the tension, the US ISM Manufacturing PMI for March sank to 49.0 from 50.3, indicating contraction as businesses hunker down ahead of the expected tariff shake-up. The Manufacturing New Orders Index also fell sharply to a two-year low of 45.2, signalling growing economic concerns.

Forex market volatility: The great rate divergence

Central banks are moving in opposite directions. While the BoJ is expected to continue tightening, the Federal Reserve and other major central banks are increasingly signaling potential rate cuts. Normally, this kind of divergence would push JPY higher against USD. But right now, trade uncertainty is overriding everything, keeping traders on edge.

Across the world, economic signals are flashing warning signs. Manufacturing contractions, rising inflation, and labor market shifts are fueling concerns about slower global growth. The specter of stagflation-a toxic mix of slowing growth and persistent inflation-remains a key risk for major economies. And if trade policies tighten further, those fears could turn into full-blown market volatility according to analysts.

Meanwhile, the upcoming US Nonfarm Payrolls (NFP) report this Friday is expected to serve as a bellwether for how these new trade policies might impact the economy. If labor figures disappoint, markets could see an even greater shake-up in the coming days.

Trump’s "Liberation Day" and tariffs impact

Trump has been calling April 2 "Liberation Day" for weeks, reports suggest that a blanket 20% tariff on nearly every country is on the table. While such a move could theoretically boost the US dollar, analysts warn that the real concern is whether tariffs accelerate stagflation risks in the US economy.

"Markets are going to be jittery ahead of the announcement," says Carol Kong, a currency strategist at Commonwealth Bank of Australia. And the uncertainty isn’t going anywhere-traders will be digesting tariff impacts well beyond this week.

So, where does that leave the JPY trade? It all comes down to timing. If you’re watching for market reactions to evolving trade policies, there could be some incredible entry points. 

USDJPY analysis: Outlook as tariff wars rage on

At the time of writing, the USDJPY pair is in consolidation mode. Upward pressure is limited as downward pressure also finds support. Prices remaining below the moving average, suggests that the major trend is still bearish for the pair, however RSI rising steadily just above the midline suggests that some upward pressure could be building.

Key levels to watch on the upside are $150.33 and $150.85. On the downside, the key support levels to watch are $149.32 and $148.70.

With “Liberation day” upon us, you can get involved and speculate on the price action of the pair, with a Deriv MT5 account or a Deriv X account.