Friday forex follies: Is the USD/JPY roller coaster gearing up for another wild ride?

Asia wrap

In a plot twist straight out of a financial thriller, Jack Ma is back in the spotlight—and this time, he’s not dodging regulators but sitting down with President Xi Jinping himself. Four years after Beijing’s brutal regulatory crackdown wiped out trillions in tech market value and forced Ma into the shadows, the Alibaba co-founder was front and center at a high-profile meeting alongside some of China’s most prominent business titans.

The message? Beijing wants the private sector back in the game.

This is more than just a photo op—it’s a calculated move. The crackdown that spooked investors shuttered IPOs, and turned once-celebrated billionaires into cautionary tales did real damage to China’s economy. Now, with growth sputtering and foreign investment lagging, Xi appears to be extending an olive branch to the same entrepreneurs who helped fuel China’s rise.

For Ma, the symbolism is massive. Once the golden boy of China’s tech boom, he vanished from the public eye after his 2020 remarks criticizing China’s financial regulators sent shockwaves through the system, leading to Ant Group’s cancelled IPO and an avalanche of state intervention. Now, he’s back in the fold, and that has global investors asking:

Is China truly turning the page, or is this just a strategic reset?

Skepticism is warranted. Beijing’s relationship with private enterprise has been a rollercoaster ride, and one high-profile meeting doesn’t erase four years of fear and uncertainty. But if this signals a real thaw in China’s stance on the private sector, it could mark a turning point for battered tech stocks and confidence in the broader economy.

For now, markets will be watching Beijing’s next move—because talk is cheap, but policy changes move markets.

Forex markets

Trump hints at Xi visit, Yuan rallies as Asia risk sentiment gets a boost.

In a rare moment of positive geopolitical news for China—and by extension, Asia’s risk markets—Donald Trump casually dropped a market-moving nugget. The former U.S. president stated that Chinese President Xi Jinping will visit the U.S., though he offered no timeline. That was enough to send the yuan ripping to a one-month high in onshore trade Thursday, as traders latched onto hopes that a potential deal could be in the works to de-escalate trade tensions.

For China, this is a much-needed sentiment boost. The market has been battered by weak economic momentum, property sector woes, and lingering geopolitical risks, but a potential thaw in U.S.-China relations could offer a crucial relief valve for battered equities and risk assets.

Of course, FX traders have seen this movie before—headlines like these can often amount to empty posturing rather than a real policy shift. But in a market that’s been pricing in relentless trade war risks, any hint of diplomacy is fuel for a short-term rally.

The real test? Whether this is just political noise or the start of something tangible. Until then, expect the yuan and Asia risk markets to stay hypersensitive to every scrap of U.S.-China trade rhetoric—because in this game, perception often trades ahead of reality.

BOJ’s tightrope Act: inflation, Yen strength, and a debt time bomb.

Japan’s hotter-than-expected core inflation print has only cemented expectations that the Bank of Japan will trigger a 25bp hike by early summer. But while a service-led recovery is holding up for now, the market is grappling with a new headache: the yen’s rapid appreciation. This is muddying the waters for policymakers and adding a fresh layer of complexity to the BOJ’s tightening path.

The case for rate hikes remains solid on paper. Inflation has been running hotter than policymakers anticipated, and with wage growth picking up, the BOJ has a much clearer runway to move away from ultra-loose policy. But here’s where things get tricky—the yen’s surge has the potential to undercut the export-driven recovery, and if FX markets keep front-running rate expectations, it could force the BOJ to tread more carefully than traders expect.

And then there’s the elephant in the room—Japan’s debt math. The country's fiscal position is already fragile at a staggering 232.7% of GDP. Higher rates mean ballooning debt-servicing costs, and while the BOJ may be focused on inflation, the Ministry of Finance (MOF) has its sights set on bond markets, wary that too much tightening too fast could send borrowing costs spiralling.

The market is still pricing in a summer rate hike, but the real question is how much more tightening the BOJ can stomach before financial stability concerns take center stage. If the yen keeps ripping higher, expect policymakers to start talking down hawkish expectations—or, at the very least, signal a more gradual rate path than traders are betting on.

Right now, JPY bulls are fully in control, but the real test lies ahead—where is the BOJ’s pain threshold? And perhaps more importantly, will the BoJ step in and buy bonds if bond yields continue to climb?

Tariffs and the FX market: The boy who cried wolf or a shock waiting to happen?

For currency traders, tariffs remain a hot-button issue, even if the market has become increasingly immune to the headlines. Trump, never one to shy away from weaponizing trade policy, said on Wednesday that he’ll roll out fresh tariffs within a month, adding lumber and forest products to his already long list of targeted imports, including cars, semiconductors, and pharmaceuticals.

But here’s the kicker—the market just doesn’t care.

We’ve hit tariff fatigue in FX. Traders have been bombarded with so many tariff threats over the years that the knee-jerk reactions have all but faded. It’s the Boy Who Cried Wolf syndrome, and at this point, FX desks are largely tuning out Trump’s trade rhetoric unless they see something concrete.

That being said, the setup could be dangerous. If this time is different and tariffs are actually delivered, the FX market is sitting on a mispriced risk—there’s virtually no tariff risk premia baked into current positioning. That means if the market suddenly wakes up to the reality of real trade restrictions, we could see a disorderly repricing across major pairs.

And just to complicate things further, U.S. economic momentum is slowing, leaving the dollar without a supportive backdrop. The Greenback has already struggled to gain traction against peers, and if tariffs start denting growth expectations, the dollar’s downside could open up further.

For now, traders are leaning on complacency, but if tariffs go from bark to bite, the FX market won’t be ready—and that’s where the real trade opportunity might be.

Geopolitical fireworks: Trump-Zelenskiy spat sends ripples through FX markets.

Just when traders thought they had enough on their plates, geopolitical tensions escalated once again, this time with Donald Trump and Ukrainian President Volodymyr Zelenskiy trading barbs. In classic Trump fashion, he didn’t hold back, branding Zelenskiy a “dictator”—a remark that sent shockwaves through diplomatic circles and put markets on edge.

But in a sharp tactical shift, Zelenskiy dialled back the rhetoric on Thursday, opting for a more pragmatic approach. He signaled that Ukraine is ready to hammer out an investment and security deal with Washington, describing his talks with U.S. envoy Keith Kellogg as "good", hinting that diplomatic channels remain open.

The FX market took notice. The euro—the most sensitive currency to Russia-Ukraine risk—climbed to session highs against the dollar on the improved tone, as traders adjusted positions amid fresh speculation about U.S. policy shifts.

For investors, the stakes couldn’t be higher. The euro’s volatility remains tightly linked to geopolitical risk, and with U.S. election uncertainty looming, Trump’s stance on Ukraine is morphing into a more significant market factor than many had initially expected. The big question: Is this just pre-election posturing or a signal of more profound shifts in U.S. foreign policy?

With geopolitical risk now feeding directly into FX price action, traders will be glued to every headline out of Washington, Kyiv, and Moscow for clues on the next major move. One thing’s for sure—volatility isn’t taking a day off.

A lucky escape in FX—MOF lifeline saves the day.

Sometimes, you just have to count your lucky stars—and more importantly, never look a gift horse in the mouth. The FX market has a way of humbling even the most seasoned reversion traders, and the past 24 hours served up a textbook lesson in market humility.

I didn’t expect USDJPY to nosedive the way it did, so when the pair started slipping through 150.75, I faded the move all the way down to 149.33, holding an average around 150—but here’s the kicker: I was sized up 200% over my usual trade size. The logic seemed sound at the time—the move looked overcooked, especially given the modest rate hike expectations from the BOJ. But as any FX veteran knows, the tape doesn’t care about your logic—and that’s when you get burned.

Then came the MOF's well-timed verbal intervention on JGB yields—a lifeline just as things were getting dicey in the wake of Japan’s hotter-than-expected CPI print. When Tokyo signalled concern about rising bond yields, USDJPY stopped dead in its tracks—and on the rebound to 155.30, I wasn’t about to stick around and test my luck. Frankl,y sticking around for more would’ve been pure hubris. I closed the whole kit and kaboodle and went back to the drawing board.

Lesson learned (again): Sometimes, you take the thing unexpected win and reset. Because in this market, the only thing that truly matters is having enough ammo to take the next punt.