JAPAN DATA: Firmer Yen Y/Y Backdrop May Keep Import Prices Negative Near Term
Jun-11 02:03
Japan import prices in May fell to -10.3%y/y, the weakest read since Oct 2023. The chart below plots USD/JPY y/y changes against Japan import prices y/y. Note the y/y line for USD/JPY is extended to end Q3 of this year by assuming that current USD/JPY levels hold until then. If such conditions hold it suggests that the negative impulse to import prices from a stronger yen will fade by the end of Q3.
- If USD/JPY falls to say 140.00 and holds there, then the negative y/y import pulse may persist beyond end Q3. The rough sell-side consensus is for USD/JPY to track lower, not higher as we progress through 2025.
- At the margin, the firmer yen backdrop compared to 2024 may have given the BoJ some comfort around holding steady from a policy standpoint in the near term, even with real policy rates remaining negative.
- Import price shifts have a strong correlation with PPI y/y shifts: +87% for the past decade. The earlier headline PPI print suggested we may see headline CPI lose some y/y momentum as we progress through Q2.
- The PPI and CPI correlation has also been reasonable at +58%, but is much lower in terms of import prices and CPI at just 25%.
Fig 1: USD/JPY Y/Y & Japan Import Prices Y/Y
Source: Bloomberg Finance L.P./MNI
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USD: Testing Resistance At 1230
May-12 01:44
The BBDXY range overnight was 1225.03 - 1229.53, Asia is trading around 1229. The USD opens slightly higher on US-China officials citing 'substantial progress' made from weekend trade talks held in Switzerland.
- Eurizon SLJ a small FX-focused hedge fund, made comments regarding the recent move in USD/ASIA last week. FT Alphaville expanded on their note to investors. https://www.ft.com/content/03f6831d-d4f3-42f8-99f4-d40daa25cd5d
- “ We continue to believe the risk of investors being blindsided by such a non-linear sell-off in the dollar continue to rise. The sharp sell-off in USDTWD last week is such an example. There will be others, we predict.”
- “We have long warned about the ‘Avalanche’ risk for the dollar. There could be USD2.5 trillion worth of ‘snow’ in China and more from the likes of Taiwan, Malaysia, and Korea, rising at a pace of USD500 billion a year — we conservatively guesstimate. Only a modest proportion of the very large trade surpluses these countries have earned have been repatriated back home, with the bulk of the export earnings being hoarded by exporters in USD deposits. Corrections in USDAsia could pacify the US, as Asia accounts for more than half of all US trade deficit, making this a fundamentally benign development, except for those caught long dollars.”
- “The overhang of liquid dollar holdings is just too large if the dollar weakens, the Fed cuts interest rates, and China stages a cyclical rebound. In other words, both the push and pull factors that kept the export earnings in dollars outside the home countries in the past years will potentially flip signs in the coming quarters. At the same time, many of those holding long-dollar exposures know very well that the dollar is over-valued.”
- Taiwan has now enjoyed US$4bn of inflows in six successive trading days. Taiwan: Had inflows of +$645m as of the 9th, with total inflows of +$2,744m over the past 5 days. YTD flows are negative at -$14,471.
- Resistance in the BBDXY around 1230 is currently being challenged, the market has failed here previously but this move does feel as if it has more to do. A move back through here will target the longer term resistance towards 1250.
- Data : US CPI Tomorrow
Fig 1: BBG Asia/USD Daily Chart
Source: MNI - Market News/Bloomberg
MNI: CHINA PBOC CONDUCTS CNY43 BLN VIA 7-DAY REVERSE REPO MON
May-12 01:25
- CHINA PBOC CONDUCTS CNY43 BLN VIA 7-DAY REVERSE REPO MON
CNH: USD/CNY Fixing Edges Down But Remains Within Recent Ranges
May-12 01:24
The USD/CNY fix printed at 7.2066, versus a BBG market consensus of 7.2441.
- Today's fixing is down from Friday's outcome of 7.2095, but we remain within recent ranges. The recent low for the fixing coming in at 7.2005.
- The fixing error was little changed at -375pips.
- USD/CNH spot was last near 7.2250, up around 0.20% versus end NY levels from Friday. We haven't been able to test sub 7.2200 meaningfully yet. The pair gapped lower at the open on constructive trade talk headlines, but for now the markets await more details.
