Future Direction of the Foreign Exchange Market Episode 116 [Tomotaro Tajima]
Tomotaro Tajima Profile
Economic analyst. Alfinants representative director. Born 1964 in Tokyo. After graduating from Keio University, he shifted careers following his stint at current Mitsubishi UFJ Securities. He analyzes and researches a wide range from finance and the overall economy to strategic corporate management, and even individual asset formation and fund management. He serves as a lecturer for lectures, seminars, and training programs hosted by private companies, financial institutions, newspapers, local governments, and various business and industrial associations, with an annual number of speaking engagements around 150. He has contributed to numerous print media series and commentaries, including Weekly Gendai “Rules of Net Trading” and Examinina “Money Maestro Training Course.” He has also written columns on many websites about stocks and foreign exchange, earning high recognition as a stock and foreign exchange strategist. He also writes the Home Economics section of Shigaikokuninsha’s “Kijun Knowledge of Contemporary Terms.” After regular appearances on TV (TV Asahi “Yajiuma Plus,” BS Asahi “Sunday Online”) and radio (MBS “Tsuruchan’s Asa-chi Radio”), he currently serves as a regular commentator on Nikkei CNBC “Market Wrap” and Daiwa Securities Information TV “Economy Marche.” Notable DVDs include “Very Easy to Understand: Tomotaro Tajima’s FX Introduction” and “Very Easy to Understand: Tomotaro Tajima’s FX Practical Technical Analysis.” Notable books include “Manual for Asset Reassessment” (Paru Publishing), “FX Chart ‘Formula for Profit’” (Alchemix), “Why Can FX Make You Asset Rich?” (Texts), and many more. His latest release is “Profit by Riding the Rising U.S. Economy” (Shiroku Kokuminsha).
*This article is a republication and editing of an article from FX攻略.com December 2019 issue. Please note that the market information described in the text may differ from current market conditions.
The U.S.-China Trade War Should Not Escalate; A Truce Is Essential
In September, the international financial markets shifted from August’s mood, quickly returning to risk-seeking. The dollar-yen, which briefly slipped to the mid-104s in late August, rebounded in September and briefly tested the mid-108 level.
In September, both U.S. and Japanese stock prices performed well, with the Dow Jones Industrial Average approaching the all-time high of 27,398 set in July. The Nikkei Stock Average rose for the fourth to the eleventh of September, touching its year-to-date high from April, showing a bullish momentum. The JASDAQ Composite also rose for 14 consecutive sessions from early September to the time of writing, with inflows into the emerging markets remarkable.
The turning point was in late August to early September, and the key word there was “escalate,” in the author’s view. Personally, it left a strong impression.
On August 29, a spokesperson for China’s Ministry of Commerce stated, “China firmly opposes the escalation of the trade war. We want to resolve the issues through calm discussions and cooperation,” and “China has ample means to respond to the United States, but the issues to be discussed now are to withdraw new tariffs and prevent escalation.”
In response, U.S. President Trump said, “From today the talks at a different level will resume,” and since then markets have held the expectation that “the U.S. and China will find common ground on trade.”
Actually, three days earlier on August 26, China’s Vice Premier Liu He lectured in Chongqing that the trade war with the United States should not escalate. He said, “Escalation is against both China and the United States and is detrimental to the whole world.” As the U.S.-China leaders’ sparring heated up in August, that remark gave markets who had disliked the tension at least a sense of reassurance that “China is serious.”
Looking back, the word escalation suggests a developing situation that could spiral beyond control, while “firmly opposing” implies that the situation is still controllable. The fact that this term came from the Chinese side carries a nuance like, “Mr. Trump, please be a little calmer. We have been responding calmly, but you haven’t.” For Trump, that could feel like “losing a point.”
As is often pointed out, there is a certain advantage to being in a stronger position closer to elections a year from now versus not being in that position. However, from the perspective of the grand battle for high-tech dominance, the United States still has a slight edge at present. In this context, it seems best for both sides to pursue a temporary truce for their own interests.
As both sides continue the trade war brinkmanship, if they escalate to a tariff hike contest, both sides risk exhausting themselves and self-destruction. Therefore, while the outcome of the high-tech dominance race remains uncertain, it seems prudent to maintain a “temporary ceasefire” in the trade war for now, which likely aligns with both sides’ true intentions.
For Trump, further escalation leading to a slowdown in the U.S. economy and a drop in his approval ratings would be disastrous. For the international financial markets, moreover, it is most important that the situation does not deteriorate beyond the current state or escalate.
