Investors have adopted a cautious stance ahead of a scheduled press conference by Mr Trump tomorrow, worried that the president-elect may ramp up his protectionist rhetoric. The dollar has softened in response.
However, the dollar’s weaker tone also reflects rising growth expectations outside of the US. Data released overnight show that consumer confidence climbed sharply in Japan last month. Despite the stronger economic numbers, the BoJ will be under less pressure to raise its yield target for 10-year JGBs.
This policy latitude will be positive for Japanese equities. Core inflation may have turned negative again, but the rise in property prices is accelerating. Japan’s reflation trade remains on track.
Summary
- Pull-back in dollar reflects higher growth prospects outside US
- BoJ may come under less pressure to raise yield target
- This will be positive for Japanese equities
