Yen is caught in the tariff crosshairs and US CPI looms

Asia wrap

Not too unexpectedly, feeding off the US AI bounce, the tech momentum continued to ripple through China and Hong Kong stocks, with Alibaba Group Holding Ltd. stealing the spotlight. The stock surged as much as 8.6%—its biggest jump since September 2024—after The Information reported that Apple Inc. is partnering with the company to bring AI features to its products in China.

Meanwhile, DeepSeek’s buzz is still fueling the Hang Seng Index, with investors increasingly on the hunt for the next Chinese AI disruptor poised to shake up the global AI landscape. The FOMO trade is real, and with AI now the defining narrative in equity markets, traders aren’t hesitating to take speculative shots on what could be the next game-changer.

Forex markets

The yen is firmly in the spotlight, and not for the right reasons. The double whammy effect is in full swing—soaring U.S. yields are fueling carry demand, while heightened fears that Japan may get caught in Trump’s tariff crosshairs are adding to the pain. The yen was the worst performer among the G-10 currencies on Wednesday as traders repositioned for what could be a rough ride ahead.

Adding to the pressure, Japanese officials scrambled to seek exemptions from Trump's latest tariff push, underscoring the high-stakes negotiations now at play. With the yen already on track for its longest losing streak in over a month, all eyes are on how Tokyo maneuvers through the looming trade turbulence—and whether BoJ policymakers will be forced to intervene if the yen thinks about deeper into the danger zone.( +158)

We certainly backed the wrong ponies this week, taking the dollar long against the euro and yuan—but you can’t pick winners every time. We had good reason to think Japan would be exempt, given its colossal investments in the U.S., but the market clearly had other ideas.

That said, I wouldn’t buy the yen just yet. I still believe Japan will be treated with kid gloves, and the JPY could rally, but I would feel more comfortable playing the reversions game if the US yields slide—and that’s a tall order with U.S. CPI on the horizon and the inflation narrative still front and centre. Until we get more clarity, staying agile is the name of the game.

We still like our short EURUSD trade heading into tonight, but USDJPY might rip higher as U.S. CPI looms large, with core inflation expected to stick around 3.2% YoY. That, coupled with lingering trade uncertainty, should keep the Fed in wait-and-see mode on rate cuts.

Markets are now only fully pricing in a rate cut for September, and Powell’s testimony to the Senate Banking Committee reinforced that the Fed is in no rush to adjust rates. He struck a balanced tone, acknowledging anchored long-term inflation expectations while downplaying labour market-driven price pressures.

The takeaway? Dollar strength remains in play, and while our EURUSD is still alive, USDJPY might have one more push higher before the dust settles.

Gold markets

Gold panic update: Another 600K ounces just landed in COMEX vaults, pushing the total stash to a staggering 36.1 million ounces. More notably, physical gold held in the "Big 3" vaults—JPMorgan, HSBC, and Brinks—has now surpassed its COVID-era peak, setting a fresh all-time high.

This isn’t just about routine inventory builds—there’s something deeper brewing. With settlement risk mounting, traders are clearly opting for the real deal over paper claims, a dynamic that’s only gaining momentum. It’s a textbook flight-to-safety move amid heightened tariff uncertainty, geopolitical jitters, and a market bracing for what’s next.

The question now: Who’s backing up the truck, and what do they know that the broader market hasn’t priced in yet?