(30 AUGUST 2019) DAILY MARKET BRIEF 2：JPY set for weekly loss ahead of Labor Day

Financial markets appear willing to close this week’s session on a positive mark, as “positive” statement made by US President Donald Trump confirm that a series of phone calls to set up a September face-to-face meeting are occurring, a news that seems sufficient to convince most investors, despite previous comments mentioning calls, subsequently rejected by Beijing this week. In any case, US Labor Day must also contribute to this trend. In this context, safe-haven JPY is likely to stay flat following a contrasting batch of data for the month of July while a trade agreement between Japan and the US, announced earlier at the G7, is expected to be ratified in September 2019.

Indeed, the recent data release of July year-on-year retail sales at -2% (prior: 0.50%), the largest decline since August 2016 due to a sharp decline in machinery and equipment amid poor weather conditions surprises, as the looming consumption tax hike from 8% to 10% is expected to be introduced as early as 1 October 2019. On a positive note, July unemployment rate came lowest since August 1992 at 2.20% (prior: 2.30%), with the job availability ratio standing at 1.59x (prior: 1.61x) while the number of new job offers declined for the second consecutive time by -1.60% month-on-month. Additionally, industrial production data from July also surprised to the upside, with the year-on-year gauge given at 0.70%, (consensus: -0.60%; prior: -3.80%). As a result, it seems that the situation in Japan is likely to improve, as Japanese and US counterparts have finally agreed on substantial tariffs cut for US agricultural products while Japanese automakers should benefit from tariff eliminations and reductions for exports to the US. The new trade agreement, following the signature of both leaders, requires the approval of Japanese Parliament in Autumn 2019.

Currently trading at 106.40, USD/JPY is expected to remain along 106.60 short-term due to lower trading volumes ahead of US vacations.

By Vincent Mivelaz