The Japanese yen has started the week with sharp losses. USD/JPY is trading at 148.18, up 1.9% on the day. Earlier, the yen strengthened to 148.59, its strongest level since April 3.
US and China agree to temporary cut in tariffs
The US and China have reached an agreement to slash tariffs on each other's products for 90 days. This would be a major de-escalation in the bruising tariff war between the world's two largest economies. Under the agreement, the US and China will slash tariffs by 115%, leaving US tariffs on China at 30% and China's tariffs on the US at 10%.
The tariff agreement has boosted risk appetite, sending global stock markets higher. The deal has weighed on safe-haven assets like the yen, which is sharply lower on Monday. Gold, another safe-haven, has plunged 3.1% today.
Japan's household spending, wages decelerate
In Japan, household spending and wage growth were down in March. Household spending decelerated to 0.4% m/m, down sharply from 3.5% in February. Average Cash Earnings declined to 2.1% y/y, down from a downwardly revised 2.7% a month earlier. There was more bad news as service-sentiment for April eased, reflecting concern over US tariffs.
These numbers support the case for the Bank of Japan to continue its wait-and-see stance before raising interest rates. The BoJ wants to see inflation remain sustainable at 2%, which will require higher wage growth and stronger consumer spending.
Fed members support Powell's wait-and-see stance
Over the weekend, a host of Fed members made public statements. New York Fed President John Williams and Fed Governor Adriana Kugler both noted that current rate policy was in an appropriate place and suggested patience was needed. This message echoed Fed Chair Powell's remarks at last week's FOMC meeting, when he said the Fed would take a wait-and-see attitude due to the uncertainty over US tariffs.
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USD/JPY holds gains near 145.00 ahead of BoJ policy decision
USD/JPY consolidates gains near the 145.00 mark early Tuesday as traders keenly await the latest BoJ monetary policy announcements for a fresh direction. In the meantime, no US-Japan trade deal reached at the G7 Summit undermines the Japanese Yen, lending support to the pair amid a US Dollar upswing.
AUD/USD retreats toward 0.6500 amid cautious mood
AUD/USD sustains the overnight late pullback from a fresh YTD peak as rising geopolitical tensions keep investors on the edge and offer some support to the US Dollar. Trade-related uncertainties also undermine the Aussie. However, Fed rate cut bets could cap any meaningful USD appreciation and limit losses for the pair.
Gold price draws support from the global flight to safety
Gold price attracts some dip-buyers in the Asian session, reversing a part of the previous day's downfall as rising geopolitical tensions revive safe-haven demand. Bets that the Fed will resume its rate-cutting cycle in September benefit the non-yielding yellow metal, though a modest US Dollar uptick could act as a headwind.
Bank of Japan set to hold rates steady as officials mull halving the pace of tapering JGB purchases
The Bank of Japan is set to keep interest rates steady at 0.50% on Tuesday. The focus will be on the BoJ’s JGB purchases tapering plan as well as any hints on the timing of the next rate hike. The BoJ policy announcements are expected to significantly impact the Japanese Yen.
Chinese data suggests economy on track to hit 2025 growth target
China's May data was mixed with strong retail sales, but soft readings on fixed-asset investment and property price. Overall, though, data suggests that China remains on track to achieve its growth target in the first half of 2025.
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