Originally published by {{|http://axitrader.com.au}}
Japan is not Asia. Japan is not emerging Asia. The yen is not the yuan, rupiah, rupee, peso, ringgit or any other Asian currency.
But the yen's continued weakness in many ways encapsulates the core promise of a Trump presidency. Stronger growth, higher inflation, higher bond rates and policy divergence between the US Federal Reserve and the rest of the globe's central banks.
That core promise is driving USDJPY higher and pressuring AsiaFX by causing capital - which had been at safe harbour in the region during the boring days when developed markets were mired in low growth and low inflation - to leave.
Probably nowhere is this reversal in USD/JPY and the pressure on Asia, Latam and other emerging markets better illustrated than with simple reference to the relationship between USDJPY and the U.S. 10-Year.
You'll see why I have been saying 120/125 fairly quickly I think.
Now, there's correlation and there is causality.
Correlation is interesting but without causality it has no explanatory powers.
But clearly bond rates, and interest rate differentials, matter for forex. So this relationship helps explain why the Yen is under pressure and why Asia and emerging forex rates more broadly are also pressured.
With the Fed expected to hike in December and also with the market under-pricing the risk of more than two Fed hikes in 2017 bonds could remain pressured.
Which brings me back to where I started. It's going to be hard for Asia FX to turn until USDJPY, and the US dollar more broadly, does the same.
Here's the region's currency levels at 8.42am Beijing/Singapore time.
And, Asian Market Chart of the Day - USDJPY - stretched but stretching.
So Japanese CPI printed 0.1% year on year to October. That and the fact that Tokyo CPI was up 0.5% suggests the BoJ might be ever-so-slightly shepherding inflation back into the Japanese economy.
But USDJPY is up 0.3% as the rally continues.
By any conventional short measure on the dailies the USDJPY move is overstretched. And I do expect a pullback at some point. But for the moment the move is unrelenting.
Have a great day's trading