JPY: Weak China trade report provides some support for the yen - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the yen has strengthened in the Asian trading session following the release of the weaker than expected trade report from China for September.

Key Quotes

“The pullback was likely technically driven as well as USD/JPY has been grinding towards the top of its recent trading range between the 100.00 and 105.00 levels. The combination of rising global yields, steepening yield curves, and the higher price of oil have weighed on the yen so far this month increasing downside risks for the yen in the near-term. Recent developments appear to have coincided with an easing of downside risks for the global economy. The improving outlook for growth in developing economies has been a positive development so far this year which in general has helped emerging market currencies to stabilize at lower levels after weakening sharply throughout most of last year against the US dollar.

Policy stimulus has been helping to stabilize economic growth in China at least in the near-term. As highlighted in yesterday’s PM call, Chinese Premier Li Keqiang has hinted that the economy will grow at least as rapidly in Q3 as in the first half of this year when it expanded by 6.7%. The report is released on the 19th October. However, the release overnight of the weaker trade report from China will prompt some concern over whether more favourable growth momentum can be sustained. The report revealed that both exports and imports priced in US dollars contracted unexpectedly by annual rates of -10% and -1.9% respectively in September. The underlying improving trend for import growth still remains intact.

Bloomberg has run a report overnight as well warning that policy measures to cool the housing market in China could have a negative impact on growth next year. According to the report, at least 21 cities have introduced purchase restrictions and toughened mortgage lending since late in September. It follows the latest official data showing property prices increased by the most in six years in August.

The underlying trend for USD/CNY has been relatively steady since the min-devaluation during the summer of last year rising by an annualized rate of around 4.5%. Our team in Hong Kong expect the trend to extend further lifting USD/CNY towards the 6.8500-level by the end of Q1 2017.”