Comments of the IMF Chairman Kristin Lagarde lay in opposition to the extensive criticism of the Bank of Japan, which does not want to reduce excessive stimulation, thus encouraging overbought stock market. Shares of Japanese companies are at the 26-year peak, and according to many, are hard to describe by the fundamentals. In turn, the growing rates margin amid ECB and Federal Reserves’ tightening will further promote capital outflows from the Japanese economy only by encouraging the investment activity of Japanese investors abroad.
USDJPY fell on Wednesday, primarily due to worsening sentiment in the US currency.
The US dollar dipped against its main opponents on Wednesday, trading in a limited range, as the direction will be set with details of the fiscal stimulation of the US economy, in particular tax reform.
The weighted average dollar index rose to a maximum of 3.5 months in the last few weeks on expectations that large-scale tax breaks will lead to the need to raise the interest rate faster in order to protect the economy from overheating. The market has priced in the approval of budget reconciliation, which greatly facilitates the implementation of the reform, but despite significant progress, it remains sensitive to every detail about the discussion of reform in the Senate. Washington Post reported on Tuesday, referring to the unidentified sources in the government, that firms can receive tax benefits with a one-year delay to comply with the Senate rule. While the dollar only gives signs of anxiety, the sentiments for further rebound remain steady.
Opposition to tax reform, perhaps one of Trump's major future achievements, can also grow because of the fall of the president's ratings. The WSJ poll showed that discontent is growing even among the core Trump electorate, so the reform itself may also be unpopular among the population, which gives another argument to Congress to block the bill.
This analysis is provided as general market commentary and does not constitute investment advice.