The USD/JPY pushed towards an eight-week low on Friday as investors continued to react to the tension between the United States and North Korea. Investors are also reacting to a report showing U.S. consumer prices rose less than expected in July.
There were a few new developments on Friday regarding the situation with North Korea which helped drive the safe-haven Japanese Yen higher against the U.S. Dollar.
Firstly, President Trump on Friday issued his bluntest warning yet to North Korea, saying the U.S. military is “locked and loaded” to a Pyongyang provocation.
Secondly, China’s state-run newspaper said Beijing should remain neutral if North Korea launches an attack that threatens the United States.
“China should also make clear that if North Korea launches missiles that threaten U.S. soil first and the U.S. retaliates, China will stay neutral,” the Global Times, which is widely read but does not represent government policy, said in an editorial.
It also added, “If the U.S. and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so.”
Additionally, China’s Foreign Ministry reiterated a call for all parties to speak and act cautiously and do more to ease the situation, rather than going down the “old path” of exchanges of shows of force and continually rising tension.
Finally, Russian Foreign Minister Sergei Lavov said on Friday the risks of a military conflict over North Korea’s nuclear program are very high, and Moscow is deeply worried by the mutual threats being traded by Washington and Pyongyang.
Lavov also encouraged Pyongyang and Washington to sign up to a joint Russian-Chinese plan, under which North Korea would freeze its missile tests and the United States would impose a moratorium on large-scale military exercises.
U.S. consumer inflation remained soft for the fifth straight month in July, raising more doubts about whether inflation will eventually rise to hit the U.S. Federal Reserve’s 2% annual rate target.
The U.S. CPI rose 0.1% in July. Analysts were looking for 0.2%. Core CPI also rose 0.1%, below the 0.2% estimate.
This news weakened the U.S. Dollar, driving the USD/JPY even lower. It also drove up equity prices which could help limit losses in the Forex pair.
Despite the rebound in the stock market, the USD/JPY is expected to remain under pressure. With no end in sight to the problems between the U.S. and North Korea, traders are likely to remain bearish on the Forex pair over the week-end.