24 days until the "Tariff X-Day" on August 1st - Can the Ishiba administration stop the dollar offensive?

1. Breaking News: Resurgent "Tariff Shock" and Rapid Yen Decline

On July 8, U.S. President Donald Trump (in his second term) officially notified in a letter his intention to impose an additional 25% tariff on all imports from Japan. The planned implementation date is August 1. Similar letters were sent to 14 other countries, including South Korea, but the European Union (EU) is reported to be exempt. Although the tariff rate comes with a caveat that it could be lowered "depending on negotiations," the market immediately reacted with risk-off sentiment. The dollar/yen surged to 146.88 yen per dollar in early U.S. trading, pushing the yen to its lowest level against the dollar this year.investing.comreuters.com

2. Three Factors Behind Yen Selling

• Increase in Real Demand Hedging: Export companies such as those in the automotive and electronic components sectors are advancing their dollar purchases for settlement to avoid a decline in dollar-denominated sales.

• Speculators Following Suit: Yen shorts have increased for four consecutive weeks in CFTC positions, and the latest news accelerated the selling.

• Fixed U.S.-Japan Interest Rate Differential: With U.S. 10-year bond yields in the 4.4% range and the Bank of Japan reintroducing YCC to keep long-term interest rates below 1%, yen selling was favored from an interest rate perspective.

Karen Kong, a strategist at CBA, points out that "the uncertainty that 'this is just the beginning' is unnerving investors."investing.com

3. Political Impact—Challenges for the Ishiba Administration

Japanese Prime Minister Shigeru Ishiba stated at a press conference on the 8th that "we will continue to seek an agreement that benefits both Japan and the U.S." However, within the Liberal Democratic Party, there are voices saying "the impact is greater than when we withdrew from the TPP" (a member of the economic affairs group). The Japanese government is considering

1. filing a complaint with the WTO

2. additional orders for U.S.-made energy resources

3. accelerating the purchase of defense equipment
   as a "three-stage rocket" to prepare negotiation materials while aiming to minimize damage.

4. Corporate Frontline: Manufacturing Outcry and Flight to Domestic Demand Stocks

4-1 Automotive

Toyota estimates an average cost increase of $5,400 per vehicle for North America due to tariffs. As an alternative measure, they are considering a "Plan B" that includes "additional investment in the U.S."

4-2 Semiconductors and Electronic Components

Renesas has urgently revived plans to expand its Detroit plant. Kioxia announced a "redesign of North American export routes via South Korea and Taiwan."

4-3 Domestic Demand and Defensive Stocks

Conversely, there is a return of funds to domestic demand stocks such as retail and electricity. As of the close on the 8th, Tokyo Electric Power Holdings was up +3.2%, and Aeon was up +2.1%, outperforming the overall market.

5. Social Media Reflects Divided Public Opinion

*As of 8:00 PM JST on the 8th

Opinions are sharply divided. While supporting export companies, there is also significant criticism that it is a "foolish policy that undermines the Japan-U.S. alliance."

6. Analyst Perspectives

• Pictet Frédéric Ducrozet: "The market has already priced in 'Trump-style deals.' Ultimately, it's the usual pattern of finding a landing point with behind-the-scenes concessions."investing.com

• Goldman Sachs Japan Desk: "The likelihood of the Bank of Japan stepping into additional easing at an extraordinary meeting as early as September has increased."

• Nomura Securities: "Our main scenario is that the yen will weaken to the upper 150 yen range during the summer."

7. Ripple Effects in Asia-Pacific

The South Korean won temporarily fell by 1%. The Australian dollar rose to 0.6517 dollars as the RBA kept the policy rate unchanged.reuters.com
In ASEAN countries, concerns about "becoming the next target of the U.S." led to a sell-off in Malaysian and Indonesian stocks.

8. Historical Comparison: Differences from the 2018-2019 U.S.-China Tariff War

While market resilience has increased, the concentrated attack on Japan is unprecedented.

9. Future Scenarios and Risks

10. Summary and Recommendations

• Companies: Urgently reassess supply chains and diversify currency hedges.

• Investors: Shift funds to value stocks and high-dividend ETFs in yen-denominated assets.

• Government: Strengthen negotiating power by forming "multilateral" pressure through both WTO and G7 frameworks.