We had more US debt limit talks Thursday evening US time and headlines to the effect that Biden and McCarthy were ‘near’ a debt limit deal. More on what this entails in the bullet point above. Yesterday Fitch placed the US on negative credit rating watch, today the firm did the same for US home lending facilitators Freddie Mac and Fannie Mae.

From Japan today we had Tokyo area inflation data for May. All three measures remained above 3%. The headline and ‘excluding fresh food’ indexes fell below their April results. However the index that excludes food and energy, known as core-core and the closest to the US measure of core inflation, rose from April to hit a 40 year high. Underlying price pressures remain worrisome despite the Bank of Japan continuing to insist that their forecasts show inflation is transitory. Also from Japan today were verbal intervention comments from finance minister Suzuki. He popped his head up to say he is closely watching FX moves and added that FX rates should be set by market based on fundamentals. This, of course, is in response to the rapid yen weakening we have seen.

Speaking of weakening, the People’s Bank of China stepped aside from supporting the yuan this week. The PBOC raised the USD/CNY reference rate today by another 230+ points to 7.0760. This is the weakest for CNY (i.e. highest for USD/CNY) since December 1 last year. For the week the central rate is up (i.e. weaker CNY) more than 600 points.

The US Commerce Secretary and Chinese Commerce Minister met. Both sides issued ‘readouts’ indicative of the two sides working together, at least in this sector and at this level.

Major FX traded in confined ranges. USD/JPY tested above 140.00 but is under there as I post. AUD, AUD, NZD, GBP, CAD are just a little firmer against the USD.

Asian equity markets:

  • Hong Kong markets were closed for a holiday today

  • Japan’s Nikkei 225 +1%

  • China’s Shanghai Composite -0.6%

  • South Korea’s KOSPI +0.3%

  • Australia’s S&P/ASX 200 +0.1%

usdyen wrap chart 26 May 2023