UBS On-Air: Paul Donovan Daily Audio 'Who to scapegoat when trade deals are done?'
At a Glance
The desk emphasizes that the new trade deal between the US and Japan is likely to lead to a significant increase in costs for American consumers, as US buyers will face a 15% tariff on Japanese goods, including automobiles. Per the full note from UBS, while the deal's announcement may reduce uncertainty, the actual impact will depend on implementation, as history has shown with prior trade agreements. This scenario sets a challenging environment for US consumers who will start feeling the effects of these tariffs in the coming years. In light of these complexities, traders should remain vigilant as the ramifications of these policies unfold in the FX market.
Key Takeaways
- 0115% tariff on Japanese goods will inflate costs for US consumers.
- 02The implementation timeline suggests effects can be felt as late as January 2026.
- 03Tariffs may reshape US consumption and trade balances.
- 04Expect volatility in FX markets as the implications of trade agreements evolve.
Full Analysis
What the desk is arguing
The desk asserts that the US-Japan trade deal will impose increased costs on US consumers and could influence market dynamics as tariffs rise. This is further supported by comments from UBS Chief Economist Paul Donovan, noting that the anticipated 15% tax is just the starting point for trade-related charges.
The implications of these tariffs will likely be felt more acutely by January 2026, as Donovan suggests that trade taxes take time to filter through the supply chain. Therefore, as US consumers absorb these costs, it could catalyze shifts in consumption patterns and impact trade balances.
Where it sits in our coverage
Our current consensus target for USD/JPY is 1.075, with a forecast range of 1.04 to 1.12. Notable firm targets include: - jpmorgan at 1.10 for Mar-26 - bofa at 1.04 for Mar-26
This desk's position appears aligned with the upper end of the expected range as outlined, indicating a cautious optimism regarding the USD given the possible tariff implications.
How other firms see it
Firms like jpmorgan and bofa share views on mitigating the immediate risks posed by the tariffs, albeit with varying targets. While bofa takes a more conservative stance, jpmorgan aligns with the belief that the US dollar could strengthen under these conditions.
As tariffs come into play, watch the USD/JPY pair closely; shifts in trader sentiment in response to changes in trade dynamics could induce volatility in this pair as the economic implications of the tariffs unfold.
Market Implications
Traders should watch for fluctuations in USD/JPY, particularly as new data reflects the economic effects of the implemented tariffs and shifts in consumer behavior due to increased prices.
From the original
The proposed US-Japan trade deal means US buyers of Japanese goods (including autos) face a 15% tax. Steel is still taxed at 50%. Of course, deals are not the same as implementation, as the UK steel industry can testify. There are media reports that Japanese Prime Minister Ishiba
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