FX Update: JPY rips higher on Trump tariffs

John Hardy

Head of FX Strategy

Summary:  Just as markets were recovering strongly from a slight post-FOMC hangover, US President Trump spoiled the party with the threat of new tariffs on $300 billion of Chinese imports. This escalation looks ominous and does not bode well for vulnerable risky assets. Among major currencies, the JPY could rise the most from these developments.

Trading interest

  • Staying short USDJPY and adding for run to 100.00, stops above 108.00.
  • Long term EURUSD calls (for example 1.1300+ calls for 3-months or longer). 

Post-FOMC party ruined by new Trump tariffs

In the wake of the Wednesday FOMC meeting, risk appetite had gone full circle from trepidation to jubilation, deciding that a heel-dragging Fed wouldn’t spoil the party for now and taking US equities rushing back toward the highs for the cycle after the post-FOMC sell-off. But US President Trump suddenly spoiled the party with the announcement of 10% tariffs on what is effectively the remainder of Chinese imports, some $300 billion per year, set to go into effect on September 1.

It’s a risky move politically for Trump, as this batch of tariffs will apply more directly to massive imports of consumer goods like laptops and mobile phones. Clearly, Trump’s move is designed to apply maximum pressure to the Chinese side for the next round of talks, but this would require China to walk back its demand that all tariffs cease for any new deal to be negotiated. Hard to see how this heads into a productive direction from here and I share the markets’ surprise with this development, figuring it was more in Trump’s interest to simply play a waiting game. 

The Trump tariffs completely negate the reaction to the FOMC as trade tensions preordain a September rate cut – possibly a 50 basis-point one if numbers are weak and the S&P is in deep correction mode. For now, odds have rushed close to 95% for a September Fed cut. The USD may only stay firm here against the riskiest currencies in EM, etc.

CNY back in play. The surprise announcement of new tariffs suddenly jolted the formerly quiet yuan exchange rate, with USDCNH almost touching 6.98 overnight, its highest level since late 2018. USDCNY "only" reached 6.95.  If China decides that a productive relationship is no salvageable, will it use devaluation as a response to Trump’s tariffs? A CNY in motion above 7.00 in USDCNY could risk an exponential elevation of energy across all asset classes.

The 107.00 area in USDJPY is a locally important one and is already under strain after Trump threatened new tariffs on Chinese imports yesterday. We could quickly open for a run to 100.00 here if we continue to see US long yields lower and risk-off behavior across markets.

Tidbits ahead of the weekend

Nonfarm payrolls: beware of US 2020 census hiring effect on headline number. A Bloomberg article today  reminds us that hiring for the 2020 US Census is gearing up and could mean a boost of some 50k to the July nonfarm payrolls change number release today. “Back in 2010, government payrolls surged by almost 600,000 in the year through May. By September, they fell back to around previous levels.” Conveniently, the BLS also reports a Private Payrolls survey which should garner far more attention over the next 15 months or so as observers discount the temporary census hiring.

ISM manufacturing was rather weak. The July ISM Manufacturing survey released yesterday was slightly disappoint, printing at 51.2 vs. 51.7 in June and vs. 52 expected. The New Orders component rose to 50.8 from 50.0 and Employment slumped to 51.7, the lowest level since November of 2016

Next week

Next week’s highlights include global services PMI on Monday, the RBA up on Tuesday (no cut expected, although latest US-China developments have notably shifted the odds and central bankers may be in insurance mode). The RBNZ expected to cut 25 bps on Wednesday. 

The G-10 rundown
USD – US dollar reaction to risk off on Trump slapping new tariffs on China was revealing and strongly underlines our USDJPY lower thesis, helped by long US yields getting crushed. Elsewhere, we watch the EURUSD bounce for a potential reversal of the FOMC reaction.

EUR – solid bounce in EURUSD yesterday as the Trump tariffs exert their pressure on the forward Fed curve and erode USD support – a solid pull and  close above 1.1100 needed to argue for a reversal, but we have an open mind.

JPY – the important 107.00 area already under pressure here as we discuss above and major levels taken out in US long yields yesterday (2.00% in the 10-year and 2.50% in the 30-year) and suggest we could drive to 100.00 quickly.

GBP – market may steer clear of sterling in a risk-off move for now. Watching 1.2000 in GBPUSD and 0.9300 in EURGBP.

CHF – trading in correlation with the JPY, but the SNB may soon have something to say as sub-1.1000 price in EURCHF raises risk of intervention.

AUD – AUD slapped lower on the Trump tariff news, as negative China news is felt Down Under first among G10 currrencies. But a firm Jul. Retail Sales print overnight provided a modest boost. Price action looks severely oversold in AUDUSD as we have touched new (non-flash crash) lows since…2009.

CAD – CAD looking solid here as the bottom dropping out of the oil market didn’t drive much collateral damage. USDCAD bears may look at establishing shorts as long as we stay south of 1.3300, figuring that Trump is going to get his weaker USD by hook or by crook.

NZD – rather neutral to the gyrations elsewhere. Chief interest is in whether AUDNZD can build a rally – overnight a solid comeback attempt after Trump’s tariff threat triggered an avalanche to new local lows. Next important risk event is NZ Q2 employment report next Tuesday and RBNZ on Wednesday (25 bps cut expected).

SEK and NOK – NOK dropped on heavy oil sell-off and the market doesn’t like the smaller currencies when risk aversion is afoot. EURNOK pushing up against big resistance line just above 9.85 which risks opening for 10.00 and EURSEK in a similar state.

Upcoming Economic Calendar Highlights (all times GMT)

  • 0900 – Euro Zone Jun. Retail Sales
  • 1230 – US Jul. Nonfarm Payrolls Change
  • 1230 – US Jul. Average Hourly Earnings
  • 1230 – US Jul. Unemployment Rate
  • 1230 – Canada Jun. International Merchandise Trade
  • 1230 – US Jun. Trade Balance
  • 1400 – US Jun. Factory Orders
  • 1400 – US Jul. Final University of Michigan Sentiment



The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.