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CNH: CNH/JPY Back Sub All Key EMAs, Fresh YTD Lows

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Yesterday's strong yen outperformance has pushed the CNH/JPY cross back sub 21.00. This puts the pair back below all of its key EMAs, see the chart below. The last time this occurred in Dec last year, we saw the cross test sub 20.50 before sentiment stabilized. 

  • Wednesday's wages print in Japan helped fuel renewed interest in the BoJ rate hike outlook. Market pricing is only pricing in slightly more than 1 further 25bps hike by end. Still, with China policy focus still likely to be heavily focus towards easing or staying accommodative, the CH-JP government bond yield differential is still point to further downside in this cross.
  • Watch points for the market will be China's inflation data this Saturday. Beyond that we have new loans and aggregate finance data due by mid February. In Japan we get household spending data tomorrow, while Q4 GDP is due on Feb 17. Early 2025 wage negotiation trends will also be in focus.
  • US tariffs is the other potential risk for this cross. So far Japan hasn't been mentioned as a potential target. Japan PM Ishiba is due to meet Trump over the coming days. No doubt the focus will be on avoiding tariff turmoil for Japan (from PM Ishiba's standpoint).
  • At the current juncture, the relative tariff outlook is more in favor of JPY than CNH. 

Fig 1: CNH/JPY Back Sub All Key EMAs 

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Yesterday's strong yen outperformance has pushed the CNH/JPY cross back sub 21.00. This puts the pair back below all of its key EMAs, see the chart below. The last time this occurred in Dec last year, we saw the cross test sub 20.50 before sentiment stabilized. 

  • Wednesday's wages print in Japan helped fuel renewed interest in the BoJ rate hike outlook. Market pricing is only pricing in slightly more than 1 further 25bps hike by end. Still, with China policy focus still likely to be heavily focus towards easing or staying accommodative, the CH-JP government bond yield differential is still point to further downside in this cross.
  • Watch points for the market will be China's inflation data this Saturday. Beyond that we have new loans and aggregate finance data due by mid February. In Japan we get household spending data tomorrow, while Q4 GDP is due on Feb 17. Early 2025 wage negotiation trends will also be in focus.
  • US tariffs is the other potential risk for this cross. So far Japan hasn't been mentioned as a potential target. Japan PM Ishiba is due to meet Trump over the coming days. No doubt the focus will be on avoiding tariff turmoil for Japan (from PM Ishiba's standpoint).
  • At the current juncture, the relative tariff outlook is more in favor of JPY than CNH. 

Fig 1: CNH/JPY Back Sub All Key EMAs 

Keep reading...Show less