FOREX: JPY Crosses - JPY Performance Mixed

Brad Setser has written a few threads on X related to the US-EU trade negotiations: “Just a reminder the US-EU bilateral (goods) trade imbalance cannot be reduced without taking on pharma & that is something that is hard to do in the context of a trade negotiation.”

• “The reality of course is that the US trade deficit with the EU in pharma stems from US tax policy (which is out of scope in a trade negotiation). The deficit kinked up in 2017 with the TJCA and legged up with Eli Lilly making a key drug in Ireland in 23/24.”
• “So rather than discussing the actual driver of the US-EU trade deficit right now (Irish pharma production for the US market), the US and the EU end up talking about things that don't matter or standard interest group complaints.”
• “The administration has for example picked up the US pharma lobby argument that the EU doesn't pay enough for drugs (it reasonably negotiates the price its national health services pay) and thus hinders pharma innovation. https://x.com/Brad_Setser/status/1926688709392359544”
• “Am still amazed that -- in a negotiation where the US has prioritized bringing the bilateral deficit down -- most traditional trade coverage completely ignores the elephant in the room (US pharma imports)”
• “And best I can tell the US and EU are negotiating over things that won't move the needle on pharma (and the US is moving toward passing a tax bill that reinforces incentives to offshore; which will have to be offset by tariffs)”
• “The number one cause of the US trade deficit with Europe is pharmaceutical imports from Ireland. Would be $100b in 2025 give or take without any front running.  Everything else is noise! https://x.com/Brad_Setser/status/192701876365787142”

• Aidan Regan wrote a piece recently - The Mirage of Substance: The Legal Scoffolding Behind Ireland's Corporate Tax Boom. https://democracychallenged.com/2025/05/19/the-mirage-of-substance-the-legal-scaffolding-behind-irelands-corporate-tax-boom/

  Fig 1: US Trade Deficit with Europe

  

  Source: Brad Setser on X/US Census Bureau

• CHINA PBOC CONDUCTS CNY448 BLN VIA 7-DAY REVERSE REPO TUES

• The PBOC issued CNY448bn of 7-day reverse repo at 1.4% during this morning’s operations.
• Today’s maturities CNY357bn
• Net liquidity injected CNY91 bn.
• The PBOC monitors and maintains liquidity in the interbank system through the issuance of reverse repo.
• The CFETS Pledged Repo Deposit Institutions 7 Day Weighted is at 1.54%, from yesterday’s close of 1.65%.
• The China overnight interbank repo rate is at 1.48%, from the prior close of 1.44%.
• The China 7-day interbank repo rate is at 1.60%, from the prior close of 1.51%.