According to Japan’s Ministry of Finance, the value of exports for US-bound motor vehicles plunged 26.7% YoY in June despite actual exports rising 3.4%. Economists attributed the sharp fall in exports to carmakers slashing prices to offset the existing 25% auto tariff.

Notably, transport equipment (including cars) accounted for 22.7% of Japan’s total exports in June, underscoring the significance of the sector for the economy.

Falling export prices impact corporate profit margins, potentially impacting Japan’s labor market. Given the auto sector accounts for around 8% of Japan’s total workforce, sector-wide job losses could weigh on consumer sentiment and spending, further affecting the economy.

A deteriorating macroeconomic backdrop would likely close the door on a 2025 BoJ rate hike. A less hawkish BoJ policy stance could weigh on appetite for the Yen. On the other hand, a favorable trade deal may revive bets on a BoJ rate hike.

BoJ Chatter and Rate Hike Rhetoric in Focus

While trade talks take center stage, traders should monitor BoJ commentary for clues on the effects of tariffs on the rate path. BoJ Deputy Governor Shinichi Uchida is slated to speak on Wednesday, July 23. Views on recent inflation numbers, the effect of US tariffs on trade terms, and the timeline for further policy tightening would move the dial.

USD/JPY Daily Outlook: Housing Sector and the US Dollar

Later in the session on Wednesday, US housing sector data will give traders a snapshot of the US economy. Economists forecast monthly existing home sales to fall 0.7% in June after rising 0.8% in May.