The Japanese yen turned weak against the greenback and other G10 currencies in the Asian session yesterday. The downtrend was fueled by the increase in risk appetite due to expectations of a likely resolution to the US-China trade war. In addition, the negative macroeconomic data also played a part in weakening the yen against the greenback.
Poor economic data and improved risk appetite weakens the yen
The Cabinet Office of Japan reported that the number of core machine orders adjusted seasonally increased by 7.6% in October from September. While the reading was better than the decline of 18.3% in September, the increase failed to meet the analysts’ average growth projection of 10.2%.
A report published on Monday showed that Japan’s gross domestic product fell by 0.6% compared to the previous three months in the third quarter of this year. The decline was more significant than the 0.5% forecast by economists and the 0.3% recorded in the second quarter.
Data from the Finance Ministry also showed on Monday that the balance of payments decreased from ¥1.33 billion in September to ¥1.21 billion in October. The average forecast promised a better ¥1.29 billion.
The yen, which was weakened by the poor economic data, also suffered from an increase in risk appetite when news emerged that Beijing had agreed to lower import tariffs on US-manufactured autos. The tariffs, according to Bloomberg, would be reduced from 40% to 15%. It is the first measurable action that emerged from the meeting between US President Donald Trump and Chinese Xi Jinping on 1 December.
On December the 2nd, after a dinner with Xi in Buenos Aires, Argentina, Trump tweeted “China has agreed to reduce and remove tariffs on cars coming into China from the US. Currently, the tariff is 40%.”
However, the tweet created confusion because neither the US nor the Chinese included the automotive tariff reduction in their post-dinner statements on the agreements reached by the two leaders.
American car exports to China declined sharply after tariffs were imposed on Chinese imports of US$34 billion in retaliation for Trump’s 25% tariffs in early July. In August, the export value of vehicles was just over US$460 million, down 55% from the same monthly figure for 2017, according to the US census.
In other signs that both parties remain optimistic about the progress of trade talks, the Trump administration is stopping the next payment of a US$12 billion subsidy package to tariff-affected farmers in the United States. The decision was taken based on the hopes that in early 2019, Beijing will resume imports of US soybean.
The commitment was communicated in a call on Monday among Chinese vice-premier and designated lead trade negotiator Liu He, US Treasury Secretary Steven Mnuchin, and US Trade Representative Robert Lighthizer.
Therefore, weak data and improving US-China trade ties are expected to keep the yen weak in the days to come.
Technically, the USDJPY pair is moving along the ascending channel as shown in the image below. The stochastic oscillator is in the bearish zone. Therefore, we are expecting the currency pair to remain in an uptrend for the near-term future.
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