U.S. President Donald Trump’s announcement of a major trade deal with Japan has sent ripples across global markets, bringing renewed focus to trade policy, monetary independence, and safe-haven assets. The deal includes a reciprocal 15% tariff on Japanese exports and opens Japan’s market to American goods like cars, trucks, and rice. Trump claims this agreement will drive a $550 billion investment into the U.S., with America receiving 90% of the resulting profits. This news triggered a fresh wave of global risk-on sentiment, driving down demand for safe-haven assets such as gold and the Japanese yen. However, despite the initially positive outlook, the deal adds layers of complexity to an already uncertain geopolitical landscape. Japanese automakers such as Toyota and Honda, while maintaining U.S. production facilities, will now face 15% tariffs on exports to America, increasing vehicle prices and adding inflationary pressure. While Tokyo had hoped for a complete exemption from U.S. tariffs, the softer 15% figure still goes against earlier expectations. Compounding matters, Japan’s domestic political scene adds more instability. Following the Liberal Democratic Party’s disappointing upper house election results, the ruling coalition now lacks a clear majority, casting doubt over Japan’s fiscal trajectory and policy coordination. This political uncertainty may prompt the Bank of Japan to delay any rate hikes until at least October, keeping JPY bulls cautious. Bank of Japan Deputy Governor Shinichi Uchida has stated that the central bank would continue raising policy rates if inflation and economic growth align with projections, even though core inflation may briefly dip below 2% next fiscal year. On the U.S. side, President Trump’s persistent push for lower interest rates and his public pressure on Fed Chair Jerome Powell have stirred concerns about central bank independence. Treasury Secretary Scott Bessent has echoed the sentiment by calling for an internal review of the Federal Reserve. This has deterred USD bulls from making aggressive moves despite a modest bounce in the dollar from its recent two-week low. The situation escalated with Congresswoman Anna Paulina Luna accusing Powell of perjury, adding further strain to the Fed’s credibility. Analysts at Yardeni Research warn that if Trump were to remove Powell or undermine the Fed’s autonomy, it could cause global investors—particularly Japan and China, who collectively hold over $1.8 trillion in U.S. Treasuries—to rethink their holdings. In such a case, bond yields could spike, and the dollar could fall sharply. While foreign appetite for U.S. Treasuries has remained strong, notably with Canada’s record $65.8 billion in purchases this May, underlying anxieties about the Fed’s independence and potential inflation spikes remain significant. Market focus now shifts to U.S. existing home sales data and global flash PMIs, which will guide risk sentiment and potentially reshape expectations around gold, the dollar, and central bank strategies in both Washington and Tokyo. Unlock your potential in the financial markets with expert trading courses by MJFXM – where smart traders begin their journey.