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Japanese Yen Rallies as Risk Appetite Wanes

The Japanese yen has ticked higher in the Tuesday session. In North American trade, USD/JPY is trading at 112.92, down 0.64% on the day. It’s a quiet day on the release front, with no major indicators in Japan or the United States.

The markets were delighted with the results of a weekend meeting between President Trump and Chinese President Xi Jinping at the G-20 summit. Trump had threatened to raise tariffs on all Chinese products from 10 percent to 25 percent on December 1, but the Chinese convinced Trump to hold off on the tariffs until March 1, to give more time for the countries to reach a deal. News of the truce between the world’s two largest economies raised risk appetite and equity markets showed sharp gains. However, the optimism proved to be short-lived, as investors are concerned that the 90-day reprieve may not lead to a long-term agreement over tariffs. Tuesday’s flavor of the day has been safe-haven assets, which has sent the yen sharply higher. The U.S. and China the sides remain far apart on a number of issues, and reaching a deal will be difficult. If the talks fail to show progress, the yen could continue to move higher.

Is the Japanese economy in trouble? Japan’s manufacturing sector slowed down in November, raising concerns about the strength of the economy. Manufacturing PMI slipped to 52.2, down from 52.9 in October. The ongoing global trade war is a primary factor in the weak reading, as Japanese companies which export to the U.S. or China have been hurt by higher tariffs. A weaker eurozone economy has led to softer European demand for Japanese exports. Making matters worse, domestic demand remains fragile, as nervous consumers continue to hold tightly onto their purse strings.

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