JPY trade relief is tempered by political risk – Scotiabank
The Japanese Yen (JPY) is up a marginal 0.1% against the US Dollar (USD) as market participants temper their response to the announcement of a US/Japan trade agreement amid uncertainty surrounding PM Ishiba’s political future, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.
Yield spreads offer support
"Rumors of the prime minister’s resignation have since been denied but the risk looms large for market participants in the aftermath of this weekend’s upper house election. The US will impose a 15% tariff on US imports from Japan, and Japan is said to have relaxed its safety requirements in order to allow more US vehicle imports."
"Fundamentally, yield spreads narrowing considerably in response to a surge in Japanese yields, reflecting market expectations for renewed hawkishness from an emboldened BoJ. The BoJ had paused its tightening cycle in response to trade and election uncertainty and is now free to carry on with normalization."
"For USD/JPY, we look to a continued decline toward the lower end of the recent 142-148.50 range."
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