UBS recently stated that the markets and traders alike have completely misinterpreted the Trump victory and believe that the JPY will strengthen to $98 by this time next year.
This hypothesis was spear headed by the firm’s Tokyo based research team who cited expectations for fiscal expansions being overstated and how more “protection” style policies will come into play with the new Trump administration. This comes at a time where Trump’s campaign pledging “tax breaks” and more spending over the next decade, in addition to restructuring the entire US trade environment, in fact pushing to sanction firms sending jobs overseas.
The markets on the whole have seen the new President elect as a further form of stimulus and this can be seen clearly in the USDJPY cross, where recently the pair reached a month high at 114 capping the biggest three week rally since 1995.
It becomes very unclear when trying to analyse the reality behind Trump’s promises and how they will actually become policy. He has already backed away from the Mexico-US wall border, with 10+ nations saying it would be a disaster. This uncertainty really has helped to form FX forecasts, with Japanese analysts very much on the side of a JPY strong hold citing market cycles and market bubbles.
For now, the USD still remains relatively strong, however how long could this actually continue for? – How much of a drag could this cause for US businesses’ revenue? Are we actually looking at the next USD bubble and will the markets continue to have faith in Trump’s policies?
