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Forex Today: BOJ drifts further from its peers, Yen on the defensive

The Japanese Yen reported losses in Asia and could extend the decline in Europe as the Bank of Japan (BOJ) squashed the already low odds of the QE taper by offering a bleaker view on inflation.

The BOJ’s move to cut assessment of inflation only underscored the rising divergence between the central bank and its peers – Fed and ECB. The US central bank hiked rates by 25 basis points and signaled faster rate hikes earlier this week. Meanwhile, the European Central Bank (ECB) pulled the plug on its QE program.

So, yield differentials will likely continue rising in the JPY-negative manner in the near future. Only a full-fledged trade war and risk aversion could put a strong bid under the anti-risk JPY. Reports hit the wires in early Asia that Trump administration is set to impose tariffs on about $50 billion in Chinese imports.

As of writing, there are no signs of panic in the market. The S&P 500 futures are flatlined and the Japanese Yen is flashing red.

However, the situation could take a turn for worse if Trump imposes tariffs on China and the world’s second-largest economy announces tit-for-tat measures. In this case, Yen crosses will likely come under fire.

What’s brewing in majors?

EUR/USD faces biggest weekly loss since November 2016.

EUR puts bias  is strongest in two-weeks, investors expect a deeper drop in the common currency.

GBP/USD created a bearish outside-day candle on Thursday, putting bears back into the driver’s seat.

USD/JPY looks north on Fed-BOJ monetary policy divergence.

AUD/USD suffered a bear flag breakdown – a bearish continuation pattern and hit a one-month low in Asia.

Major news in Asia

BoJ keeps policy steady, downgrades CPI assessment

Mexican Financial Stability Board: Economy faces complex scenario due to trade related uncertainty

Goldman Sachs: Japan inflation hasn’t been up to the BoJ’s par

Mexico to study further tariffs on the US – Reuters

US tariffs could undermine global trading system – IMF

US President Trump approves $50 billion in tariffs on China – Wall Street Journal

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