CNBC's Lin Lin takes a look at the elusive U.S.-Japan trade deal, as Tokyo appears to stick to its stance of not backing down ahead of the Upper House elections on July 20

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Trade talks between the United States and Japan have stalled, with both sides maintaining firm positions. Japan, which was given priority status in the negotiations, has not shown willingness to compromise, particularly as the country approaches important Upper House elections. Recent discussions have taken place over the phone rather than in person, and Japan's prime minister has reiterated the country's resolve not to yield easily, even to allies.

Market reactions have been relatively muted despite public criticism from the U.S. president. Some investors believe the current impasse is partly due to political theatrics ahead of the elections, with the possibility of renewed momentum after the results. U.S. officials have also increased pressure on Japan regarding defense spending and support for American forces, adding further complexity to the negotiations.

U.S.-Japan trade talks hit a wall, Tokyo not backing down

We've been talking about this for some time now, Lynn, that Japan is also playing a hard ball. Indeed, both sides are staying pretty defiant here. These talks have been pretty difficult despite what many had anticipated or forecasted when these negotiations first began three months, keeping in mind that Japan was one of the first countries that was designated with that priority status in terms of negotiations as well. And last week, we were hearing that perhaps Ryusei Akazawa would go to Washington again for what would be the eighth round of talks. That did not happen. Instead, we know that he had two phone conversations with the Commerce Secretary Howard Lutnick, once on Thursday for 45 minutes and another on Saturday for one hour as well. And we've been hearing from the Prime Minister basically every day, given that he is out and about. We are in that campaign period before that all-important Abaha elections as well. And on television yesterday, the Prime Minister was again asked about these talks and again, keeping quietly defiant here, saying that Tokyo will not compromise easily and that even allies have to say what they have to say to each other. I mean, it's worth keeping in mind, as I said, that the domestic politics is a big component here. We've heard from Fred Newman earlier talking about this from HSBC. Also last week as well, we heard from Scott Besson when he was asked about how these trade talks were going and he said, well, we've got to keep in mind here that there is an election on foot. So perhaps we will see some more of that momentum coming back into play post-July 20 as well. But I think a lot will depend on as well how these results end up going and whether or not the LDP can hold on to that majority. Indeed, yeah, we're less than two weeks away from that July 20th upper house election. So I mean, there are better than even odds that there will be no trade deal or framework deal between the U.S. and China by or even before July the 9th. How are investors viewing this? When we look at the market reaction, particularly, I think last week when we saw the U.S. president criticizing singling out Japan three days in a row. On the whole, the Nikkei 225 index was only down eight tenths of a percent, which is mild when you consider how volatile this index can be. And we've seen some of that post so-called Liberation Day and so forth. Some of the investors that I've been speaking to out of Tokyo take the view here that there is still the theatrics being played out here, that ultimately they see that there will be some sort of a negotiated deal. The question is around the timing. However, we did hear from Kurt Campbell, who is the former deputy secretary of state, where he highlighted that there was a sense of dread and concern coming from countries like Japan as countries wait for these potential letters that are coming. Let's watch. If you take Japan, for instance, at the same time that the president and his team are driving a very hard bargain with respect to autos and insisting on more Japanese investment in the United States, even though Japan is one of the top two or three investors already, they're also putting enormous pressure on Japan on defense spending, on more support for American forces based in Japan. I would say at a general level, this is just not how we've traditionally treated an ally. And so right now, the country that's in the worst shape is Japan. So, Mr. Campbell, taking the view here that Japan is in that sort of worst case scenario, Sherry, and keep in mind that we did hear the US president, yes, last week, floating out these other numbers, 30, 35 percent or some other number. But certainly, when you look at the market reaction, the market has not been pricing in any kind of expectation of that elevated tariff beyond the snapback rate of 24.

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U.S.-Japan trade talks hit a wall, Tokyo not backing down

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