The Dollar/Yen is trading higher on Tuesday after shrugging off early session weakness. The initial selling pressure was fueled by concerns that U.S.-China trade negotiations had hit another snag. The Forex pair turned higher after the major Asian equity markets finished higher as investors shrugged off the news. The Japanese Yen was also pressured by comments from Bank of Japan (BOJ) Governor Haruhiko, who said the central bank can still deepen negative rates, within limits.
At 09:24 GMT, the USD/JPY is trading 108.785, up 0.106 or +0.10%.
U.S.-China Trade News
Optimism over a possible trade deal drove up demand for higher-risk assets, boosting the USD/JPY early in the session on Monday. The optimism was fueled after Chinese state media said over the weekend the United States and China had held “constructive” trade talks, days after White House economic adviser Larry Kudlow said they were getting close to a trade deal.
However, after reaching record highs, the major stock market averages failed to post significant gains, triggering a flight-to-safety move, reversing the USD/JPY lower.
The selling in the Dollar/Yen was fueled after CNBC’s Eunice Yoon reported, citing a government source, that Chinese officials are pessimistic about the prospect of a U.S.-China trade deal. China is troubled by President Donald Trump saying recently the U.S. would not roll back tariffs as they thought both sides had agreed to do so in principle, Yoon reported.
BOJ Can Still Deepen Negative Rates, Within Limits: Kuroda
The Bank of Japan has room to deepen negative interest rates, Governor Haruhiko Kuroda said on Tuesday, but he signaled there were limited to how far it can cut rates or ramp up stimulus.
Kuroda shrugged off the view held by some critics that the BOJ had run out of tools to expand an already massive stimulus, saying there was consensus within the central bank that it can deepen negative rates beyond the current -0.1%.
But he said the BOJ must carefully weigh the benefits and costs of further easing, suggesting the hurdle for expanding stimulus has risen due to the cost of prolonged easing, such as the effect it has on financial institutions’ profits.
“This is a market that’s going to live or die by the tone around trade,” said Art Hogan, chief market strategist at National Securities in New York.
“There is some good news that’s baked into this market, so when we get bad news (it’s) going to roll over.”
Not only is this statement true for equities, but it’s also true for the safe-haven Japanese Yen. Positive news will continue to underpin the USD/JPY, while negative news will drive it lower.
The price action on Monday and early Tuesday demonstrates that investors aren’t sure what to believe – official comments or unidentified government sources.
This article was originally posted on FX Empire
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