JPY in demand amid geopolitical dominance

Today’s trading session is likely to remain calm and dominated by risk-off sentiment as Asian shares continue to pullback from three-month high while safe-haven Japanese yen continues to gain traction following Trump’s Friday comment on potential rollback of Chinese tariffs while escalating tensions in Honk Kong and Iraq strengthens the trend. Meanwhile, Japan’s release of disappointing surplus and machine orders data are not expected to change much, although it should support the case of further easing packages from both the BoJ and Japanese authorities in the near future.

In September, month-on-month machine orders reached -2.90% (prior: -2.40%; consensus: 0.90%), the third consecutive deceleration, while the current account surplus in September reached JPY 1.61 trillion ($14.9 billion), with a trade balance of JPY 1.1 billion and services surplus of JPY 40.10 billion (before: 23.26), strongly affected by the decline in exports caused by current trade tensions. Risks of further headwinds is yet to be monitored for the Japanese economy as growing uncertainty concerning the scale of upcoming US – China tariffs rollback and the underlying perspectives of a phase one deal could worsen the situation for the export-reliant economy. In this context and unless the inflation outlook and global demand do not improve, the Bank of Japan should implement further monetary easing, a topic more intensively discussed during its 31 October 2019 meeting. Third quarter GDP data due on Thursday should confirm a stagnation with quarter-on-quarter data and year-on-year data expected to mark along 0.20% and 0.90%. In current risk-off mood, JPY should stay on strong demand.

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