GBPJPY, H1
The YEN is very much in play in the European session. USDJPY is at one-week lows at 110.82, GBPJPY is down even more aggressively to 143.20 (11 month low) and EURJPY is also down to 128.60. The strength in YEN has two clear catalysts this morning. First, overnight the 10-year JGB yield nudged higher for a second consecutive day, to 0.111%, although it’s become clear that the BoJ will be maintaining a firm lid on yields despite last week tweaking its stimulus programs to allow for greater flexibility. More importantly perhaps for markets was the split in the vote and intentions within the BoJ. Secondly, of course, is the pressure on global trade and in particular the latest move by the USA. Again the markets are expecting this to get worse before it gets better.
The Sino-US trade confrontation will likely continue to escalate. Aside from the new tariffs on $16 bln of Chinese imports, the Trump administration is mulling a tariff hike on $200 bln of Chinese imports, and there is a good chance these will be confirmed later this month or early next. Trump perceives the advantage in the trade war to be his given the massive U.S. trade deficit with China, that the US economy is motoring and given that Trump, such as his proclivities are, will want to look strong before his base going into the midterm elections in November. At the same time, it’s also reasonable to assume that China will not yield, play the long game and wait to see how the chips fall for Trump at the November elections. Beijing has been preparing for a protracted fight, injecting more liquidity into the banking system and pledging a more “active” fiscal policy.
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Stuart Cowell
Head Market Analyst
HotForex
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