The trade war between the United States and China remains the central issue in the financial markets today. The Japanese yen is once again emerging as investors’ favorite safety asset and is appreciating against the American dollar. Meanwhile, the Chinese yuan is losing positions.
Even though Donald Trump and Xi Jinping agreed during their meeting in Japan last month that they will not serve each other with more tariffs and that they would focus on trade talks, the optimism about a resolution of the conflict was short-lived. Last week Trump surprisingly announced he is introducing more tariffs on Chinese exports to the US, even as the two countries’ negotiations teams were working on resolving their differences.
China vowed to retaliate against what they see as unfair treatment. However, China simply doesn’t have as many US products it could tax as vice versa. What they did instead was to allow the yuan to weaken this week, climbing above 7 yuan per USD. This benefits China’s international trade, as it makes it objectively cheaper to buy goods from there. Trump’s administration condemned the decision and accused China of currency manipulation, not for the first time.
With risk appetite currently low on the markets, the USD/JPY sank to 106.26. If things continue in a similar vein over the next couple of months, analysts predict it could go as far down as 103-104 yen for a dollar.
