It has been a quieter trading session overnight after the risk-off start to the week. The Nikkei 225 index is unchanged after yesterday’s sharp 4.1% sell-off. Similarly, the major foreign exchange rates have been relatively stable overnight ahead of the release tomorrow of President Trump’s plans for “reciprocal tariffs”.
The US dollar has benefitted at the start of this week from news reports suggesting that President Trump is considering implementing more “broad-based” tariffs that could be more disruptive for global trade and growth.
The high beta G10 commodity currencies of the New Zealand dollar (-0.7% vs. USD), Canadian dollar (-0.5%) and the Australian dollar (- 0.5%) have been the worst performing G10 currencies at the start of this week while the yen has outperformed alongside the US dollar. US Treasury Secretary Scott Bessent told Fox News yesterday that the tariff announcement would be at 3pm Washington time. The WSJ reported yesterday that President Trump’s advisers in recent days were considering implementing tariffs of up to 20% on virtually all trading partners while at the same time a narrower plan involving reciprocal tariffs is still on the table.
According to an administration official, President Tump is inclined to tariff every nation with which the US runs a trade deficit, and he wants a “clean number” for each nation. Whatever the final plan, the official added that he wants it to be “big and simple”. In addition, to the debate over reciprocal tariffs, the president’s team is also considering unveiling a slate of new industry-specific tariffs that could hit critical minerals and products, among other industries. It is still unclear if those tariffs will be unveiled tomorrow. It quickly follows last week’s decision to announce 25% tariffs on imports of autos and certain parts.
The main economic data release overnight has been the latest Tankan survey from Japan although it has had a limited impact on the yen. USD/JPY has been trading just below the 150.00-level. The latest Tankan survey for March 2024 revealed that the business conditions DI for large manufacturers deteriorated slightly to +12 down from +14 in December.
It was the first decline in four quarters. In contrast, the business conditions DI for non-manufacturers continued to move higher to +35 from +33. The measures for manufacturers and non-manufacturers both remined elevated although the drop for manufacturers could be an early indication that uncertainty around President Trump’s tariffs plans and potential hit to Japanese exporters is beginning to have a negative impact on sentiment. Japanese rate market participants have become less confident recently that the BoJ will hike rates further at upcoming policy meetings in May or June. We are still sticking to our forecast for the next hike in July ahead of President Trump’s tariff announcement tomorrow.
