Not to spread fear or anything, but it’s worth noting that USDJPY fell back below 109 overnight as risk-off sentiment proliferated on the back of more negative growth news out of China.
The yen strengthened against the dollar for a third consecutive year in 2018 and there are myriad catalysts for the currency in 2019 including ongoing safe haven demand tied to the laundry list of geopolitical concerns, possible BoJ tweaks and dollar weakness predicated on a dovish pivot from the Fed, a deceleration in the U.S. economy and more political turmoil inside the Beltway.
USDJPY’s tight link with long-end US yields was readily apparent amid the December Treasury rally and while it seems likely that Trump will be forced to strike some manner of deal to reopen the government lest sentiment on Wall Street should deteriorate further, any such truce between the White House and Democrats won’t do anything to bolster the incoming data in the near-term.
Of course the jobs report could come in gangbusters, thereby undercutting the recession narrative, but the worry is that a blockbuster December payrolls report would only stoke fears of a hawkish Fed. If the data does continue to disappoint stateside and the Fed leans commensurately dovish, that would presumably add to downward pressure on the dollar and yields, thereby bolstering the yen against the greenback, potentially sending a risk-off signal.
In any event, things aren’t off to a great start. US futures slid sharply following the Hang Seng’s worst start to a year since 1995.
For reference, here’s an updated version of our annotated “since the Fed” futures chart.