- USD/JPY gains sharply above 155.00 as investors underpinned the US Dollar against the Japanese Yen in a risk-on market mood.
- US President Trump delayed a 25% tariff order on Canada and Mexico for 30 days.
- Investors await Japan PM Ishiba’s meeting with US Trump this week.
The USD/JPY pair climbs above 155.00 in Tuesday’s North American session. The asset strengthens as the safe-haven demand of the Japanese Yen (JPY) has diminished more than the US Dollar (USD). Investors dump the Yen as United States (US) President Donald Trump has deferred his orders to impose 25% tariffs on Canada and Mexico by 30 days.
President Trump announced an immediate suspension of his tariff orders after North American peers agreed to cooperate on restricting the flow of drugs and undocumented immigrants into their economy.
The scenario has resulted in a sharp decline in the appeal of safe-haven assets. Investors expect tariffs from President Trump to be more a tactic to get better deals against US trading partners than a source to fund tax cuts.
Going forward, the Yen will be influenced by the outcome of Prime Minister Shigeru Ishiba’s meeting with Trump later this week. Given Japan’s large trade surplus with the US, investors will look for cues on how the nation will address tariff risks.
Meanwhile, the US Dollar (USD) gives up its intraday losses and turns slightly negative as the appeal of risk-perceived assets improves. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, ticks lower to near Monday’s low of 108.40.
On the domestic front, investors await the US JOLTS Job Openings data for December, which will be published at 15:00 GMT. The number of Job Openings is expected to be 8 million, marginally lower than the 8.1 million in November.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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