【Dollar/Yen Exchange Rate】Last week's market and this week's outlook

【Dollar/Yen Exchange Rate】Last week's market and this week's outlook

Last week's USD/JPY moved with a pattern of dollar selling and yen buying across the week. On the 9th, the dollar was sold down to 109.4 yen, breaking below the recent low of 109.7 yen hit on March 25.

The reason the dollar was sold was that on the 5th, President Trump indicated that due to slow progress in US-China trade talks, from the 10th onward all imports from China would be subject to a 25% tariff, which raised expectations of a hardline stance and then shifted the risk of a breakdown in the US-China trade talks higher.

On the 9th and 10th, the ministerial-level US-China trade talks did not reach an agreement, but it was decided to continue negotiations. The next meeting date is undecided, but the US plans to announce tariff details on all imports from China on the 13th. However, since this would increase costs for US companies, they will also seek the opinion of the US economic community, and it is anticipated that the 25% tariffs would be implemented about two months later. Therefore, whether a US-China trade agreement can be reached within this period will greatly affect the global economic outlook. While sentiment toward an agreement was high in April, in May it appears China requested another revision to the draft agreement.

Due to domestic political factors in China, there is an image that the pressure to resist, such as subsidy cuts, is high, and President Xi Jinping is said to have instructed delaying this agreement. On the other hand, President Xi is reportedly taking full responsibility, and there is a possibility of a direct agreement at a US-China summit within the next two months, so there has not been panic selling of dollars or stock market crashes.

The long-term yield indicator, the US 10-year Treasury yield, and the short-term 2-year yield, have trended lower over the week. On the weekend of the 10th, the 2-year yield was 2.27%, the 5-year yield was 2.26%, and the 10-year yield was 2.47%. The inversion between the 2-year and 5-year yields continues, but the yield gap has narrowed slightly. Uncertainty about global and US economic recession risks is increasing.

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