U.S. Trade Policy and the Direction of U.S. Interest Rates [Jiro Ota]

Jiro Ota Profile

Jiro Ota. FX Strategist. He began FX trading at The First National Bank of Boston, Tokyo Branch, in 1979. Later, he worked in corporate FX trading at Manufacturers Hanover Trust Bank, BHF Bank, National Westminster Bank, and ING Bank, then moved to retail FX, conducted sales at GFT Tokyo, later gaining experience as a Market Strategist, and is currently active as an individual investor.

※This article is a republished and re-edited version of an article from FX攻略.com February 2019 issue. Please note that the market information described in the main text may differ from current market conditions.

Recent USD/JPY market movements have been at an average level

The U.S. midterm elections were as market expectations predicted with no surprises, but with the Senate won by President Trump’s Republican Party and the House by the Democrats, there are voices worried about a gridlock phenomenon. Domestic issues may shift the axis toward foreign policy where Republicans have priority, and there is a sense that the focus could be on a tougher trade policy.

Looking back at USD/JPY price movements since 1987, the year-end average exchange rate over the past five years is 110.87 yen, the 10-year average is 109.82 yen, and the current exchange rate around 112–113 yen places it slightly in a depreciated yen position. Incidentally, the 32-year average since 1987 is 112.15 yen, and when compared to the current USD/JPY level, there hasn’t been a major historical change.

Also, the 2018 starting value (112.58 yen) and the closing value as of November 16 (112.82 yen) are nearly at the same level. This is similar to 2015, whose starting value was 120.14 yen and closing value 120.19 yen, where the intrayear low to high range is around 10–20 yen, but by year-end it returns to around the same level, which is a recent characteristic of USD/JPY.