The dollar managed to be steady against the yen on Tuesday as fears about a trade war receded. The fears were rooting from US President Donald Trump’s proposed tariffs on imported aluminum and steel.
The greenback had slipped to 16-month low against the yen, which is considered a safe-haven, late last week due to Trump’s announcement. However, anxiety has been alleviated this week as market participants started to view Trump’s tariff proposal as a negotiating tactic instead of a hard policy proposal.
“There is some relief and a shift to some risk-taking,” said Teppei Ino, who is an analyst for Bank of Tokyo-Mitsubishi UFJ based in Singapore.
On the other hand, the dollar’s perk-up against the yen was still too modest to be considered a sign of an uptrend, according to Ino. It steadied on the day at 106.22 yen. Last Monday, it gained 0.4 percent, inching away from its 16-month low of 105.24 last Friday.
On Tuesday, Bank of Japan Governor Haruhiko Kuroda said that there were downside risks to the central bank’s prediction that inflation would reach its 2 percent target around March 2020 fiscal year ending. The yen, however, showed no significant reaction to the statement.
The BOJ has already lagged behind other central banks in moving toward policy normalization. Speculations over the Japanese central bank’s exit strategy from its easy monetary policy have been one of the major factors impacting the yen in the past few months.
Last week, the yen rose after Kuroda flagged the prospect of an exit from the monetary stimulus if the inflation target was achieved.
Meanwhile, investors await further updates on Trump’s tariff proposals, according to Heng Koon How, the head of markets strategy for United Overseas Bank in Singapore.
“There’s a slight relief rally in the equities market and risk appetite. Going forward we have to assess the risk accordingly, depending on how the news flow is,” said Heng.
As for other currencies, the Canadian dollar was at 1.2980 per US dollar, while the euro inched 0.1 percent up to $1.2347. The Australian dollar rose 0.1 percent higher to $0.7770.
Asia’s Highest Currency Gain About to End?
Asian currencies may be on the brink of a market correction after they completed their best year in the last 20 years. Experts suggest that one telling sign was the two-year low slump on Indonesia’s Rupiah last week.
The rupiah has already slid 1.5 percent over the past month, and that set it as the worst performer in Asia and the third-worst among the 24 emerging-market currencies in the globe. The fall was attributed to the investors’ sell off of the nation’s stocks and bonds, plus the rise in equity volatility due to the expectations of higher US interest rates.
“Indonesia’s rupiah is arguably the high-beta version of Asian ex-Japan risks,” said Vishnu Varathan, who is the head of economics and strategy at Singapore-based Mizuho Bank Ltd. “The declines are certainly not peculiar to IDR. Nor are they conclusively behind us. The upshot is that with uncertainty around global trade risks, global liquidity is to start declining, albeit gently, later this year. AXJ air-pockets are anticipated.”
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