The US Treasury had added Japan to its monitoring list for its semi-annual report on currency practices, but this should not pose any hurdle for Japan to intervene in support of the JPY. Japan was added to the list simply because its current account surplus has risen to over 3% of GDP, thus meeting 2 out of 3 criteria set by the US Treasury. Furthermore, the US Treasury is only concerned if there are also large FX purchases to weaken the currency, but Japan is doing the opposite by supporting the JPY. We still see a high chance for intervention if the JPY depreciates sharply again, especially if USD/JPY rebounds above 159, which had triggered interventions back in April-May. The US Treasury’s monitoring list also contains many other Asian economies besides Japan, including China, Taiwan, Malaysia, Singapore, and Vietnam.
The offshore RMB has softened to its weakest level since Nov 2023, as markets anticipate a relaxation in the onshore fixing. The USD/CNY fixing has inched closer towards 7.12, and could break above its 7.09-7.12 range that has held since January. Onshore USD/CNY is now trading close to the 2% upper limit from the fixing at around 7.26, while USD/CNH has traded above 7.29. We had previously cautioned that trade tensions could be a risk for RMB policy, and the risk does seem to have risen after the EU announced extra duties of up to 38.1% on Chinese electric cars, starting July. Chinese state media now reports that Chinese auto companies are calling on Beijing to increase tariffs on large-displacement cars from Europe. An escalation in trade disputes could pose downside risks to growth, and the RMB.
USD/KRW has rebounded towards 1390, with the KRW seeing spillovers from RMB and JPY weakness, on top of a broadly stronger USD overnight. But Korean trade remains a bright spot, with the country’s first 20-day exports in June growing steadily by 8.5% y/y, undoubtedly helped by a semiconductor boom.
USD/CHF rallied above 0.89 after the SNB cut its policy rate by 25bps to 1.25%, marking a second consecutive rate cut. SNB sees a further decrease in underlying inflationary pressure compared to the previous quarter, and that lower rates will maintain appropriate monetary conditions. It expects growth to remain moderate at around 1% this year, with unemployment likely to continue rising slightly.
Quote of the day
“I paint self-portraits because I am so often alone, because I am the person I know best.”
Frida Kahlo
21 June in history
Mexican artist Frida Kahlo became the first Hispanic woman to be honoured on a US postage stamp in 2001.
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