JPY Set For A Rise Amid Risk Events

Brexit Benn Act extension trigger, the follow-up on earnings season and caution over US President Donald Trump expectations of a mid-November phase one trade deal should maintain JPY in upheaval despite disappointing trade data and Typhoon Hagibis damages in October. As inflation in Japan closed the month of September at a 29-month low, speculations that the Bank of Japan is expected to deepen short-term interest rate target deeper into negative territory at its 19 December 2019 meeting is increasing.

The recent Brexit developments, including the Letwin amendment that blocks approval of UK PM Johnson deal with the EU before the Parliament passes legislation to implement Brexit, should force GBP traders to hold their breath as another EU emergency summit should confirm the extension this weekend. Equities are trading sideways as upcoming 3Q results, including Caterpillar, Boeing, Intel, Amazon or Mc Donald’s are about to provide a brief overview of current damages caused by the US – China trade discord on the economy. Latest trade data presented by Japan point to a trade deficit of JPY 123 billion ($1.14 billion; prior: JPY 136 billion), with exports and imports dropping respectively for the tenth and fifth straight month in a row. Combined with last week September core CPI marking at 0.30% (prior: 0.50%), it seems that market speculations of additional BoJ easing starting from December is rising as BoJ Governor Haruhiko Kuroda favors the monetary policy tool consisting of additional short-term interest rate cut as the 2% inflation target appears far from reachable. Meanwhile, Sino-American trade talks are expected to ramp up by the end of the month as Chinese Vice Premier Liu He delegation should come to Washington in order to finalize the written phase one deal ahead of the Asia-Pacific Economic Cooperation meeting in Chile on 16 – 17 November 2019. Therefore, as investors are currently maintaining a wait-and-see approach, JPY should be closely monitored, as upcoming headlines and manufacturing sentiment data should support the currency.