LEO LEWIS: The evening after Donald Trump's inauguration speech, Japanese TV news assembled wise heads to debate the two bits that most bothered Japan-- what exactly "America first" would mean for the yen and how best to translate the word "carnage." On the second, the experts quickly arrived at "gyakusatsu." On the first, nobody seemed too embarrassed saying they had no idea.
And when Tokyo began trading on Monday, with the yen rising from its Friday low of 115 to 113.70, it was not clear the market had much idea either. Traders rolled out the usual "yen as safe haven" explanations to explain the intraday move. And the macro analysts' argument that Mr. Trump's protectionism should logically weaken the dollar at some point provided familiar mood music. But the yen's drift into the 113 zone, say some, may represent an outright misstep and a reason to load up on dollars ahead of a rally that could take the greenback back to 120 against the yen, or even 125 over the next few months.
Undoubtedly, Mr. Trump's policy statements defy comfortable conversion into bull or bear case. But fiscal expansion still appears on the cards, and he has still held back from any public comment on a desirable dollar-yen level. FX analysts at NatWest Markets, meanwhile, argue that since the Federal Open Market Committee appears unusually united in calling for faster rate rises, the dollar could soon find itself trading in a 115 to 125 range as the rate differential works its magic. Among all the G10 currency pairs, dollar-yen has the highest sensitivity to US rates.
If the dollar rally does not come, however, the dollar-yen pair make perform an even more important function in coming weeks as barometer of how far any Trump-induced uncertainty, or simple greenback rally fatigue since the November 9 election result, has thrown off the predictable seasonal performance of dollar-yen at this time of year. According to Shusuke Yamada, FX analyst at Bank of America Merrill Lynch, over the past decade, the dollar has, on average, rallied by nearly 2% from late January into early April each year, initially driven by seasonal risk-on behaviour globally, and then from a strong dollar buying by Japanese institutions around the start of their fiscal year on April 1. Dollar-yen's performance against that benchmark should, in theory, give an early definition of America first.