USD/JPY Forecast: Rising Wedge Signals Trouble as Tariff Risks Mount

• Trump’s 25% auto tariff plan puts Japan’s exports under pressure
• USD/JPY at 151.00, a key pivot after breaking trend resistance
• Rising wedge hints at potential downside if bulls fail to hold gains.
• Friday’s U.S. and Japan inflation data add to market volatility risks

Summary

The Trump administration looks set to introduce a 25% tariff on auto imports entering the United States on April 2, alongside separate yet-to-be-announced reciprocal tariffs on all nations scheduled for the same day. That puts Japan in the crosshairs of the trade war given the U.S. is one of its largest export markets. The news has seen USD/JPY push back toward 151.00, a key battleground for bulls and bears following the break of longstanding downtrend resistance earlier this week.

Tariff Turmoil Hits Japan

Trump’s planned 25% tariff on auto imports threatens to hit Japan particularly hard, with the U.S. accounting for around $41 billion worth of Japanese auto exports in 2024. Higher costs for American buyers could crimp demand, denting revenues for Toyota, Honda, and Nissan while forcing tough decisions on production and pricing. The situation could worsen further if Japan retaliates with tariffs on U.S. imports, further impacting supply chains for its large manufacturing sector.

Japan’s economic recovery from decades of deflation remains fragile, and any slowdown in trade with the U.S. presents another challenge for policymakers at the Bank of Japan. That raises the risk the BOJ may struggle to lift interest rates further this year.

151 New USD/JPY Battleground

While USD/JPY pushed higher on the tariff headlines, the reaction deviated from the recent trend where negative news typically saw the yen behave as a safe haven. USD/JPY has shown a stronger relationship with risk assets and volatility measures over the past month than with interest rate differentials, suggesting an escalation in the trade conflict could weigh on the pair.

USD/JPY is now locked in a battle at 151.00 following the bullish break of long standing downtrend resistance earlier this week. The level has previously acted as both support and resistance, making it a key pivot for broader directional risks. Stepping back, the price appears to be carving out a rising wedge after bottoming in early March, warning that the nascent recovery may soon give way to a resumption of the broader bearish trend.

Source: TradingView

If USD/JPY fails to break convincingly above 151.00, it may encourage bears to establish shorts looking for a move lower. A stop could be placed above the level for protection. Uptrend support sits around 149.30 today, with a break of that opening the door for a potential test of 148.65 or even 147.10. Conversely, a sustained break above 151.00 could serve as a launchpad for bulls looking for a push towards the 50 and 200-day moving averages.

Momentum indicators are sending mixed signals. While RSI (14) is trending higher, a slight bearish divergence this week hints at fading upside momentum. MACD is grinding higher but remains in negative territory. Taken together, momentum screens as neutral, placing greater emphasis on price action when assessing setups.

Even though they’re likely to play second fiddle to the April 2 tariff announcement, Friday looms as an important session for USD/JPY traders with key inflation data released in both Japan and the U.S. I previewed both events in my weekend outlook. It can be accessed here. 

-- Written by David Scutt

Follow David on Twitter @scutty