FX Daily Strategy: Asia, June 10th

The economic calendar on Tuesday is rather empty and will likely see any market movement driven by headlines. The Trump-Musk fiasco has settled for now but one can not eliminate the possibility of either one of them going on a rampage on social media. Given they are the POTUS and one of the richest man in the world, their relationship will have a critical impact in the financial market. 

As the G7 summit approaches next week, we are expecting more headlines on the trade deal front as we have been hearing from Canada and Japan that they would like to further negotiate the terms with U.S. around the time. While the Canada-U.S. trade deal maybe closer than Japan, top Japanese officials have signaled their willingness to accept the minimal 10% tariffs and should pave way to a U.S.-Japan trade deal. But nothing is certain until we hear it officially.

The Japanese PPI will be released on late NA session and will continue to signals inflationary pressure. The broader inflation picture for Japan has shown further pressure for the BoJ to move their steps. Yet, the BoJ is unlikely to overstep between the trade conflict with U.S. are to be resolved as it has major downward impact towards the Japanese economy. The wage hike in Japan has slowed in the past two weeks but still above 2%. PPI, especially service PPI, should continue to points towards the north.

Our central forecast sees a U.S.-Japan trade deal to be outlined before July and we are penciling in a 25bps hike from the BoJ after the dust of trade war settles, likely in August. The market has not priced in any hike from the BoJ this year and thus will see a major positioning change in the JPY once the uncertainty of tariffs clears. Such should be supportive for the JPY in a medium run and could prompt the BoJ to intervene if yields jump too high.

On the chart, there is consolidation above the 142.10/00 support has given way to break above resistance at 144.00 congestion to reach 145.00/08 area. Positive daily and weekly studies are tracking higher and suggest room for stronger bounce to retest strong resistance at 146.00/146.55 congestion and March low. This area is expected to cap and lower high sought to further pressure the downside later. Break here, if seen, will open up room for stronger gains to retrace the January/April losses. Meanwhile, support is raised to the 144.00 congestion which should underpin.