USD/JPY drops 1.2% as Japan auto tariffs threaten yen strength

USD/JPY fell sharply by 1.2% to 140.50 as concerns over new tariffs on Japanese auto exports paradoxically strengthened the yen through risk-off sentiment. The proposed tariffs targeting Honda and Toyota exports could significantly impact Japan's trade balance, with automotive exports representing 20% of total exports. Market participants are speculating the Bank of Japan might accelerate policy normalization to support the currency amid external pressures. The yen gained across the board, with EUR/JPY dropping to 156.20 and GBP/JPY retreating to 185.30. Technical indicators show USD/JPY breaking below the crucial 141.00 support level, opening the path toward 139.50. The auto sector pressure adds complexity to the BoJ's policy decisions, as officials balance domestic growth concerns with currency stability. Traders are increasingly betting on BoJ intervention if the yen strengthens too rapidly, creating a complex trading environment for yen pairs.