President Trump sent a letter imposing a 25% reciprocal tariff on Japan and posted it on his own Truth Social account. The fact that Japan was mentioned first indicates strong dissatisfaction with the country.
The impact of a 25% tariff on the Japanese economy would be severe, making exports of low-margin products like cars unprofitable. While companies could shift production overseas, this would reduce industrial output in Japan, depress GDP, and put downward pressure on wages. In fact, Japanese car manufacturers have largely avoided passing on tariffs to consumers.

On 2 April, the market reacted with yen appreciation on ‘Liberation Day.’ However, this was based on the assumption that stock prices would fall and risk aversion would prevail. This time, with Japanese and US stock prices relatively stable, the reaction may follow the textbook pattern of yen depreciation, reflecting improvements in the Japan-US trade balance (reduction of the US deficit) and increased investment from Japan to the US.

If a 25% tariff is imposed, Japan’s export sector, which is highly dependent on the US economy, will be significantly affected. This could act as a downward pressure on GDP of approximately 1%, and given that the potential growth rate is in the low 0% range, there is a risk of sustained negative growth. If growth slows and fiscal spending expands in the future, doubts may begin to arise about Japan’s debt-bearing capacity, with cumulative debt exceeding 200% of GDP.
From an economic textbook perspective, when tariffs are imposed, the currency weakens, and the risk of a rise in the dollar-yen exchange rate is likely to increase.

In a public opinion poll conducted this weekend, the ruling coalition is expected to struggle in the upcoming House of Councillors election, and the growth of a new conservative force advocating expansionary fiscal policy is expected, causing interest rates in the ultra-long-term sector to rise. It is possible that yen selling has begun due to concerns about fiscal deterioration.
The market has been most interested in Trump’s tariffs and US monetary policy, but there seems to be a slight sense of fatigue with these topics, and attention may shift to Japan’s fundamentals in the future.

Meanwhile, Finance Minister Bessent said that the euro will rise. The minister believes that US policy interest rates will eventually decline due to the easing of inflation in the US, which is likely to motivate the euro to rise and the dollar to fall.
Combining these two factors, the euro is expected to rise against the yen. There are no major economic indicators scheduled to be announced this week. Both the dollar-yen and cross-yen markets are likely to remain strong.