The renewed escalation of trade tensions has pushed the yen to a 17-month high against the dollar. We consider it very unlikely that the government will respond by intervening on the foreign exchange markets and reiterate our forecast that the yen will strengthen a bit further by year-end. The continued appreciation of the exchange rate has fuelled speculation that the Bank of Japan will soon have to loosen policy, but our view is that the Bank will opt for symbolic measures rather than any cuts to its policy rates.
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