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USD/JPY Advances as Markets Await Trump?s First Presidential Speech

January 20, 2017 - Written by John Cameron

Strong hopes for Donald Trump’s Presidency, coupled with a warning on Trump’s economics from a senior Japanese cabinet advisor, has kept the US Dollar to Japanese Yen exchange rate firmly on the advance.

Markets Look to Trump Speech for Clues on Fiscal Stimulus Plans

Investors are looking for signs that Trump intends to carry through with his election campaign promises, which involved massively increasing investment in infrastructure projects and reforming the US tax system.

However, even if he were to confirm these plans still stand, traders could be disappointed, warns Credit Agricole. The bank’s FX analysts caution;

‘Trumponomics’ is based on three pillars: fiscal stimulus, deregulation and protectionism....We expect President Trump to hit the ground running next week, with early executive-order activism likely in the area of energy deregulation and trade. The most USD-positive aspects of his agenda (corporate and personal income tax reform, infrastructure spending) need to be legislated in Congress and could be significantly delayed.’

Trump could therefore give markets what they want later tonight while still disappointing, if he vows to implement his spending plans but admits that they will not be effected for some time.

Investors Unsettled as Abe Advisor Warns against Trump Trade Policies

An advisor to Japanese Prime Minister Shinzo Abe has stated that Japan should resist if Donald Trump attempts to start a trade war or make the US more isolationist.

Koichi Hamada also implored Trump to listen to his experts on the subject of trade and told him his economics were ‘wrong’.

Japan is a more export nation, so the potential for Trump to create volatility for global trade is concerning policymakers.

But with China and Japan seemingly digging in their heels, it is growing increasingly likely any attempts by Trump to become more protectionist will be fiercely resisted, with the Asian nations unlikely to appease him.

USD/JPY Forecast to Weaken if Trump Avoids Talk of Fiscal Stimulus

Investors are eagerly awaiting additional policy details from the new US President, but these may not be forthcoming.

The USD/JPY exchange rate could be set to depreciate following Trump’s inauguration, which MUFG believes will disappoint investors looking for stimulus clues;

‘The new US president’s inauguration speech today may shake USD/JPY, but we do not expect any further details about his fiscal policy plans.’

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