Yen Drops as Japan Faces Election Risks and Unresolved U.S. Tariff Deal

The Japanese yen fell on Thursday amid growing political uncertainty and stalled trade negotiations with the U.S., hitting a one-year low against the euro. Investors are increasingly nervous as polls suggest Prime Minister Shigeru Ishiba’s coalition could lose its upper house majority in Sunday’s election.

Trade tensions are adding pressure, with Japan yet to secure a deal to avoid U.S. tariffs ahead of an August 1 deadline. A 45-minute call between Japan’s top trade negotiator Ryosei Akazawa and U.S. Commerce Secretary Howard Lutnick ended without resolution. President Donald Trump recently hinted that 25% tariffs on Japanese imports may remain unless a deal is reached, compounding market jitters.

June export data showed a 0.5% year-on-year decline, marking the second consecutive monthly drop. The yen weakened 0.4% to 148.44 per dollar and 0.3% to 172.58 per euro. Meanwhile, Trump denied plans to fire Federal Reserve Chair Jerome Powell despite reports suggesting otherwise, helping the U.S. dollar recover modestly. The dollar index edged up 0.1% to 98.466.

Market experts say any move against Powell could destabilize faith in U.S. financial leadership. ANZ’s Mahjabeen Zaman warned that a dovish Fed could reignite inflation and weaken the dollar further, stressing the importance of Fed independence.

In other currency movements, the Australian dollar fell 0.6% to $0.6491 after disappointing jobs data pushed unemployment to its highest since late 2021. The New Zealand dollar also slipped 0.3% to $0.5929.

As global investors watch Japan’s election outcome and the U.S.-Japan tariff standoff, market volatility and pressure on the yen are expected to persist.