USD/JPY has slipped from the 153 level, as markets look to upcoming Fed and BOJ, as well as Trump’s visit to Japan for talks on trade and security. Markets had already priced in a Fed rate cut on Wednesday, but the BOJ meeting on Oct 30 could be one where there is some potential for surprise, with markets largely expecting a hold. Given near-term political stability and PM Takaichi’s inclination towards more expansionary fiscal policy, the BOJ’s economic outlook may turn more positive, and CPI forecasts could also be upgraded. This could lead to increased pricing of a BOJ rate hike and lift the JPY, even if there are some concerns of a possible change in the BOJ’s institutional environment under Takaichi. Meanwhile in Tokyo, the meeting between Trump and Takaichi could see announcements around Japan’s pledge to invest USD550bn in the US as part of its trade deal.
RMB and KRW has strengthened in the wake of a positive outcome to US-China trade negotiations, with the upcoming Trump-Xi summit on Thursday likely to see another extension of the trade truce. Threats of a 100% additional tariff by Trump have abated, with Bessent confirming that there is a deferral on China’s rare earth controls. USD/CNH has eased below 7.11, helped by a sustained decline in the USD/CNY fixing. USD/KRW has also eased towards 1430 with an easing in trade tensions, but KRW weakness is still pronounced as Korean residents’ sentiment towards the KRW has been negative, leading to substantial retail outflows into USD assets.
AUD/USD saw a 0.70% surge this week to mid-0.65 levels, leading the group of G10 currencies. Besides positivity around an easing of US-China trade tensions, AUD was supported by RBA Governor Bullock’s cautious tone around monetary policy easing yesterday. She underscored that the labour market is still tight while inflation is proving sticky, and that the RBA could “wait for a bit more data”. Pricing for a rate cut at the RBA 4 Nov meeting has eased, and Q3 CPI to be released tomorrow may not change the picture much, with an expected pickup in headline inflation to 3.0% y/y (from 2.1% in Q2).
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