Trump-Abe Rapport Won’t Stop Yen From Passing 100, JPMorgan Says

  • Yen’s initial reaction is to fall after friendly summit
  • U.S. concerns with weaker yen will resurface, Sasaki forecasts

Why Markets Seem to See Constructive Trump, Abe Meet

Japanese Prime Minister Shinzo Abe’s success in avoiding any clash over exchange rates with U.S. President Donald Trump at a summit meeting hasn’t resolved underlying conflict, according to JPMorgan Chase & Co.

"We continue to think politics will be a main driver for dollar-yen this year," Tohru Sasaki, head of Japan markets research at JPMorgan in Tokyo, wrote in a Feb. 13 report. "Japan will soon realize that the peaceful weekend in Florida is over and face reality. The U.S.’s protectionism would create downward pressure on the dollar against funding currencies."

The yen tumbled in the initial response to the Trump-Abe meetings, where the two leaders delegated the task of overseeing economic dialogue to the vice president and deputy prime minister. It slid 0.8 percent to 114.11 per dollar as of 9:19 a.m. in Tokyo.

Even so, Sasaki said he was "comfortable" with his call that the yen could climb past 100 by the end of 2017. Sasaki last year projected that Trump’s trade policies would prove bad for the dollar in much the same way as during the 1993-95 period during Bill Clinton’s administration. His forecast compares with a median yen target of 117 per dollar by the end of this year, a Bloomberg survey shows.

While Trump last month said that Japan and China "play the money market, they play the devaluation market and we sit there like a bunch of dummies," his meetings with Abe Feb. 10-11 focused on national security ties rather than economic issues.

Exchange rates weren’t entirely absent from the gathering, however. The president in a joint press conference Friday with Abe, following a separate phone call between Trump and Chinese President Xi Jinping, said that the currencies of the U.S., China and Japan would soon be on "a level playing field."

Hugs and hand-holding characterized the bilateral meetings, with economics assigned to the deputies -- read about that here.

"As far as the currency devaluations, I’ve been complaining about that for a long time -- and I believe that we will all eventually and probably, very much sooner than a lot of people understand or think, we will be all at a level playing field," Trump said without specifying how that would happen.

The next day, five hours on a golf course in Florida underscored the personal rapport between the new U.S. leader and Japan’s prime minister.

"Considering Trump’s remarks in the past, trade- and currency-policy related discussions from here would not necessarily continue to be smooth and friendly," Sasaki said. There is still the "possibility that the U.S. will continue to criticize weak yen going forward."

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