By Rocky Swift
TOKYO (Reuters) -The yen slid on Thursday as concerns mounted over a pivotal election in Japan and a still elusive trade deal with the U.S. to avoid a punishing rise in tariffs.
Japan’s currency traded near a one-year low against the euro as polls showed Prime Minister Shigeru Ishiba’s coalition was in danger of losing its majority in the upper house. The U.S. dollar staged a meagre recovery after U.S. President Donald Trump denied he was planning to fire Federal Reserve Chair Jerome Powell.
Japan’s top trade negotiator held a phone call with U.S. Commerce Secretary Howard Lutnick on tariffs, as data showed the Asian nation’s exports were starting to feel the impact of tariffs with shipments down for a second straight month.
“With the elections, the tariffs, the overall relationship between Japan and the U.S., I do think there is some reason to sell the yen,” said Bart Wakabayashi, Tokyo branch manager at State Street. “The election seems to be a key point in the foreign view of the currency at the moment.”
Investors remain focused on tariffs ahead of an August 1 deadline when many trading partners face higher trade levies. Japan failed to clinch a deal with the U.S. before the July 9 expiration of the temporary pause on the country-specific tariffs.
Overseas shipments from the world’s fourth-largest economy dropped 0.5% in June year-on-year in value terms, data showed on Thursday.
The nation’s chief trade negotiator Ryosei Akazawa held a 45-minute phone call with Lutnick following comments by Trump that the U.S. would likely keep 25% tariffs on Japan unless the countries agree on a trade deal.
Domestic media reported that Prime Minister Ishiba is arranging to meet U.S. Treasury Secretary Scott Bessent in Tokyo on Friday, where the two sides may discuss trade. Ishiba must also contend with an election on Sunday, where polls are signalling a poor showing for his coalition, which could heighten calls for the government to boost spending and cut taxes.
The greenback rebounded after declines against the yen and euro on Wednesday on investor worries that removing the Fed chief before his term ends in May 2026 would undermine faith in the U.S. financial system.
A more dovish Fed could lead to a return of inflation and negative real yields on Treasuries, said Mahjabeen Zaman, head of foreign exchange research at ANZ.
“If that comes to fruition, you’re going to see a much weaker dollar than we’re already expecting,” Zaman said in an ANZ podcast. “Such an event, if that even does happen, it will raise questions for Fed independence and credibility, so I think it’s only going to be an increase in volatility.”