US-China trade war has begun

Last week, the Trump administration of the United States raised the previous 10% tariff to 25% for $ 200 billion on Chinese products, and also announced to apply the 25% duty to the remaining $ 300 billion as the fourth retaliatory duty, putting pressure on China. In fact, the USTR (US Trade Representative Office) has announced 3800 items are targeted for Chinese products. On the other hand, China announced a countermeasure to put a 5-25% duty on US products $ 60 billion from June 1 and has just shown the appearance of a “trade war.”

Because of this, USD/JPY has become more active in buying yen from the flow of risk-off, and there was a movement to try 109.00 yen downwards twice last week. However, it did not break 109.00, and the US and Japan stock prices also moved upwards in the second half of the week, and then the price is going up to 110 yen level.

USD/JPY 1H chart

Japanese GDP and consumption tax outcome

On the morning of yesterday (20/05/2019), preliminary Japanese GDP figures for the January-March quarter were released. The forecast was 0.1% decrease compared to the previous quarter and 0.2% decrease on an annualized basis, but the figures announced were 0.5% increase over the previous quarter and 2.1% increase on an annualized basis. It was actually a positive surprise in response to the result that greatly exceeded the forecast this time. Depending on the outcome, this GDP was also expected to have a major impact on whether the October consumption tax hike is postponed. It seems that consumption tax is likely to be raised to 10% from this coming October and it is expected to be officially decided after the government’s “Monthly Economic Report” scheduled on the 24th, but the dollar appreciates at one point to 110.32 yen on the upswing of GDP. This shows a level slightly higher than the dollar’s return high on the NY market last weekend.

Continuing US-China talks

However, I do not think that the dollar yen which turned around in 109.00 yen will turn to rise immediately after this. Looking at the level of US long-term interest rates, it has been declining at 2.39% this weekend. It also seems to be heading to the 2.36% level recorded on March 27th. There is no denying that the dollar may weaken in the form of a decline in US interest rates as the dollar yen has a strong correlation with US long-term interest rates. In addition, it can be determined that the low stability of US long-term interest rates incorporates the risk of the US-China trade talks. As the US CNBC reported that “the US-China talks seems to be at a standstill,” the talks will continue, but there is no indication of its resumption. Also, China, which has shown a relatively flexible attitude, has come here and has turned into a bullish attitude. Some media say that the Chinese Communist Party executives have also criticized the response of Deputy Prime Minister Liu He, who was negotiating at the front line, as “too weak.”

Market officials are paying attention to whether they will have a US-China summit meeting as scheduled at the “G20” seat to be held in Osaka, Japan at the end of next month. If it is held as scheduled, I think the progress of the consultation and, in some cases, the possibility of “agreement” still remain. However, since this problem is said to be at the bottom of the U.S. and China supremacy, it is necessary to be aware that it is not an issue that can easily be settled.

On this weekend, President Trump and Mrs. Trump will come to Japan the first time in Japanese new era of Reiwa. I think there will be a Japan-US Summit, but here too there may be progress on the Japan-US Goods and Goods Agreement (TAG). The situation in which “trade” is the keyword of market price fluctuation continues.