The resumption of trade war headlines has pushed JPY into demand, as optimism over a potential recovery of world economies along 2H 2019 is mitigated. June Trump – Xi meeting at G20 summit in Japan is not expected to show much progress and the threat of potential tariffs on Mexico are not putting investors in the mood. Furthermore, recent four-day Trump – Abe meeting in Japan did not bring much as both leaders face resp. presidential elections in November 2020 and upper house elections along 21 July 2019. USD/JPY is now down -0.80% year-to-date and trades at 4 months low.
The downtrend in USD/JPY from 109.62 (30 May 2019) sustains as the pair confirms a bearish breakout after reaching major support at 108.89 (31 January 2019). The 1-month 25-delta risk reversal gauge dropped from -1.54% to -1.83%, suggesting higher volatility on the downside. Economic data published in Japan are generally positive, with April unemployment rate dropping by 0.10% to 2.40% despite a wide gap in the job availability metric given at 1.63%, its higher level in more than 40 years and which confirms major manpower shortage due to an aging population. April industrial production rose 0.60% from prior month (y/y: -1.10%) as firms were ramping up production following 10-day Golden Week Holidays while retail sales came flat m/m (y/y: 0.50%).
In current setting, we expect USD/JPY collapse to stop, as US data should somewhat support the greenback. Approaching 109.20 short-term.