Sino-Japanese Geopolitical Tensions Reflected in Weak Yen and Nikkei Losses
November 19, 2025
Ramifications continued on Wednesday from Prime Minister Takaichi’s parliamentary comment that Chinese steps to seize control of Taiwan could elicit a military response from Japan. That insinuation during a Q&A session led to a forceful verbal response from Beijing officials. The yen fell another 0.4% overnight against the dollar and at 156.2 has depreciated by 3.8% since October 16th. Japanese share prices fell 0.6% further today, extending the drop from a recent record high to 7.8%, and the 10-year Japanese JGB yield rose three more basis points today to 1.76% versus 1.07% at the end of 2024.
Among other financial market changes thus far today,
- The dollar dipped of 0.1% against the euro but a rise of 0.5% relative to the New Zealand currency.
- Major U.S. equity indices are up modestly, but it should be noted that U.S. stocks have performed worse in the past week than action in pre-open futures has suggested.
- While other Asian stock markets closed lower in China, Hong Kong, Taiwan, and South Korea, European bourses are marginally up.
- Bitcoin remains depressed, falling 1.7% so far this Wednesday.
- The 10-year Treasury yield is flat, while comparable yields in Europe are three basis points lower in Italy, a basis point higher in the U.K., and down two bps in Germany, France and Spain.
- The price of oil is 1.1% weaker, while that of gold has recovered 1.2%.
In central banking news,
- Minutes from the FOMC’s review of U.S. monetary policy in late October will be published this afternoon at 14:00 EST. Analysts have mixed views on the outcome of the last FOMC meeting of 2025 next month.
- The National Bank of Hungary’s Base Rate was left unchanged at 6.5%, matching expectations. The last change, a cut of 25 basis points, was made in September 2024. 6.5% is halfway down from the peak of 13.0% maintained for a full year until an initial reduction in October 2023. Consumer price inflation in Hungary had dropped from 25.7% at the start of 2023 to 3.0% by September 2024 but the reading in the past two months of 4.3% exceeds the 2-4% target.
- Bank Indonesia’s policy interest rate was likewise retained to 4.75%, which is its lowest since November 2022 and down from a crest of 6.25% between March and September of last year. After imploding from a peak of 5.95% in September 2022 to a low of -0.1% last February, Indonesian consumer price inflation has climbed back to 2.9%, which is above the target range midpoint. BI officials are hopeful that inflation will ease in the future and do not rule out further interest rate cuts in the future. Rupiah stability is another key priority.
- A 25-basis point cut in the Bank of Iceland‘s 7-day term rate today to 7.25% had not been expected by analysts. That was the fourth reduction this year and follows two cuts in the final quarter of 2024. Altogether, the rate has dropped two percentage points from the 9.25% peak held from August 2023 until October 2024. Officials at the central bank note that Iceland’s output gap has been closed, and they feel that “inflation will subside more rapidly than previously assumed. Pay rises are still sizeable, and inflation expectations continue to measure above target. Substantial uncertainty therefore remains…. The turbulence in the mortgage market is likely to cause households’ borrowing terms and financial conditions to tighten, even though the Bank’s real interest rate has held broadly unchanged. In view of this, the Committee considers it appropriate to offset this tightening by lowering interest rates.”
Euroland’s consumer price inflation last month was confirmed at the preliminary estimate of 2.1%, a 2-month low. After dropping from 10.6% in October 2022 to as low as 1.7% in September 2024, inflation has lodged marginally above 2.0%. Core CPI of 2.4% remains higher than the total CPI, and the services component in October of 3.4% was the most in a half year. ECB officials are in no hurry to cut their interest rate further.
Among the fourth largest Euroland economies, inflation of 3.2% in Spain and 2.3% in Germany were considerably above the French and Spanish readings of 0.8% and 0.3%.
Labor costs in the euro area were 3.5% above a year earlier in the third quarter. That was was similar to the on-year changes in the first two quarters of 2025 but down from 5.2% in the final quarter of 2022.
Euroland’s seasonally adjusted current account surpluses of EUR 23.1 billion in September and EUR 22.2 billion in August were down from a second quarter monthly average of EUR 30 billion. As a percent of GDP the surplus narrowed from 2.7% in the year through September 2024 to 2.0% in the 12 months through September 2025.
Japanese core domestic private machinery orders posted solid advances in September of 4.2% on month and 11.6% from a year earlier.
Australia’s wage price index rose 0.8% in the third quarter and 3.4% from a year earlier, matching the second quarter’s results.
In New Zealand producer output prices rose 1.0% on quarter and 3.5% on year during the third quarter.
British CPI inflation slipped to an as-expected 4-month low of 3.6% last month and was associated with a six-month low core CPI inflation rate of 3.4% including a sticky 4.5% service sector component. Producer output inflation in the U.K. of 3.6% was its highest in 29 months.
South African consumer price inflation accelerated 0.2 percentage points to a 13-month high of 3.6% in October. That was up from a 57-month low of 2.7% in March but down from 7.8% in April 2023.
For a change, Wednesday brought investors some U.S. economic data to peruse. The trade deficit, which had jumped to $78.2 billion in July from $59.1 bln in June, returned to $59.5 billion in August. The driver in August was a 5.1% slump in imports that masked flat exports. Elsewhere, mortgage applications dived 5.2% last week, resulting in a net 18.4% slump from the application level eight weeks before. Finally, Treasury figures on capital movements with the rest of the world revealed a spike in the net long-term inflow to $179,8 billion in September from $134..2 billion in August and $39 billion in July.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank Indonesia, Bank of Iceland, British CPI, Euroland current account and CPI, Japanese machinery orders, Magyar Nemzeti Bank, U.S. trade deficit
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