The US Government added 140 Chinese companies to the ‘Entity List’, which effectively bans trade, while 30 countries, including Japan and the Netherlands, which already have their own export controls in place against China, were excluded from the restrictions.
The Japanese stock market soared in response to this, and the dollar/yen also strengthened with it. However, the already existing regulations have not been suspended and this is unlikely to boost the earnings of Japanese semiconductor companies. Foreign investors who had been short the Nikkei were probably surprised and bought back into the market. In France, Bardella, leader of the far-right National Coalition party, hardened his stance in the budget debate and his government fell. The euro sell-off has put pressure on the euro-dollar.

The dollar and euro had been in a downtrend, but when Jiji Press and MNI reported that a rate hike at the December meeting would be postponed, the dollar and crosses were quickly bought back, with position adjustments ahead of the weekend’s jobs data. The trade war is not over, as China has imposed rare metal restrictions on the US. Risk-off buying of the yen could still continue.

Whether the BOJ will raise interest rates in December or January is becoming more and more subtle there. Presumably, they would choose to raise rates if the yen was weakening, but not if the yen was strengthening. There is a limit to the upside, but there is also a limit to the downside. There is a limit to the yen’s depreciation as well, although it would be a trivial result to conclude this. Since the market is currently in an adjustment phase, it is easy to buy back the dollar and cross currency. After the announcement, the yen is likely to continue trending higher.

The 0.2% increase in the GPIF’s investment yield target has led to a rise in Japanese equities and a steady trend in the dollar and yen on speculation that a greater proportion of investment in equities and overseas investments will be made. However, the BOJ’s rate hike is just around the corner, and we will not see another hike this month and be done with it, but we will see 0.75% by summer. If that happens, it will be difficult for the dollar/yen to maintain upward momentum. With the dollar basically back in the market and the euro-dollar’s downtrend unchanged, we would assume that the euro-yen will test the downside further.