HomeContributorsFundamental AnalysisYen Edges Lower, Japanese Household Spending Next

Yen Edges Lower, Japanese Household Spending Next

USD/JPY has posted losses in the Wednesday session, after posting gains on Tuesday. In the North American session, USD/JPY is trading at 106.25, down 0.33% on the day. On the release front, there are no Japanese events on the schedule. In the US, employment indicators kicked off with ADP Nonfarm Payrolls, and the news was good. The indicator defied expectations and rose in March, climbing to 241 thousand, well above the forecast of 208 thousand. On the services front, ISM Non-manufacturing PMI dropped to 58.8, shy of the estimate of 58.8 points. On Thursday, the US releases unemployment claims and Japan publishes a key consumer indicator, Household Spending.

The tariff spat between China and the US continues, and the growing possibility of a global trade war has the markets seeing red. The Chinese government has fired the latest salvo, announcing 25% tariffs on 106 American products, including soy beans, wheat and some motor vehicles. The value of these US exports amounts to some $50 billion – the same value as Chinese exports which have been slapped with tariffs by President Trump. This represents a significant raising of the stakes, and has the markets worried. China’s deputy finance minister has said that a trade war between the two sides would be a ‘lose-lose’, and few investors would disagree with his diagnosis. However, neither Trump nor Chinese President Xi Jinping has blinked so far, and the crisis shows no signs of being resolved anytime soon. As one US analyst wrote this week, “trade wars are easy to start but hard to stop.” The Japanese yen is a key safe-haven asset, and nervous investors could snap up the Japanese currency if there is no quick resolution to the tariff spat unleashed by US President Trump.

Japanese Prime Minister Shinzo Abe will meet with Prime Minister Trump later this month in Florida, and Japanese officials are bracing for what could be difficult trade talks. Trump signed a free-trade deal with South Korea in March, and the agreement included a side deal to prevent currency devaluation, and the US could demand similar provisions with the Abe government, which has adopted an ultra-accommodative monetary policy that has kept the yen at low levels. Trump may also demand a bilateral free-trade agreement between the two countries, rather than the multilateral approach favored by Tokyo.

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