Macroscope | Japan plays its Trump cards to weaken yen
Many factors point to further weakening of the yen versus the US dollar, which is bad news for other Asian exporters
Asian firms who compete with Japanese exporters may not welcome it, but while Japan’s currency has slumped in value versus the dollar since Donald Trump was elected as the next President of the United States, the yen’s slide may have further to run.
First off, yields on US Treasuries have spiked, with the US bond market selling off since Mr Trump captured the White House, despite the fact that his inauguration doesn’t take place until January and that there will then be a material time lag before his Administration’s spending plans take effect.
Yet that bond market move is wholly logical. If there is a perception that something will be worth less tomorrow than it is today, then any potential seller of US paper would be foolish to wait.
It seems highly unlikely that the drivers of the higher US dollar following Donald Trump’s presidential victory are going to disappear any time soon
Of course, by simultaneously making the prospective returns on US investments look more attractive in comparison to those on offer elsewhere and also making the cost of servicing dollar debt more expensive, the rise in US yields feeds demand for the dollar.
That’s a bandwagon the currency markets have been quick to jump on.
And this is even before another rate hike by the Federal Reserve which must surely now happen next month. Last Thursday’s US consumer price data for October showed the biggest uptick in six months and weekly claims data for US state unemployment benefits came in at their lowest level since 1973.
It seems highly unlikely that the drivers of the higher US dollar following Donald Trump’s presidential victory are going to disappear any time soon. In dollar/yen those drivers may become even more pronounced.
