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An anomaly that was in the financial markets, namely the negative correlation between US interest rates (US-Japan interest rate spread) and USD/JPY, started to disappear in April, according to analysts at Nomura.

Key Quotes

“We attribute the anomaly to (1) concerns that the expansionary fiscal policies of the US Trump administration might amplify economic volatility, (2) uncertainty over the sustainability of the US fiscal deficit and government debt, (3) concerns that US monetary policy might be a step behind overheating in the economy or a pick-up in inflation in the US, (4) uncertainty over protective US trade policy, and (5) heightened expectations for early normalization of monetary policy by the BOJ.”

“We think factors remain that could get in the way of ending the anomaly, including (1) concern that global economic growth momentum could decline in general owing to maturation of the economic cycle, (2) concerns that US trade demands on China could take on geopolitical overtones including deterring Chinese hegemony, (3) the possibility that recent increases in crude oil prices and the appreciation in the yen could boost expectations, via expectations for a pick-up in inflation, for the BOJ to normalize monetary policy, and (4) concerns that the accumulation of debt could become a problem in emerging nations or that credit concerns could emerge in response to higher US interest rates and a rise in the US dollar.”