The report by MUFG highlights the impact of US tariff policy uncertainty and the risk of coordinated FX intervention by US and Japanese authorities on the Dollar. The uncertainty has led to Dollar weakness and a surge in real assets like Gold, while local factors continue to drive divergence across Asian currencies. The report suggests that actual tariff increases may be slower to come this year due to upcoming US mid-term elections.

Tariff uncertainty and FX intervention risks

"The two key themes impacting markets are US tariff policy uncertainty coupled with the risk of coordinated FX intervention by US and Japanese authorities, all of which have resulted in US Dollar weakness, surge in real assets such as gold, with local factors continuing to drive divergence across Asian currencies."

"From a market perspective, the increasing tariff uncertainty not just on South Korea but also other countries such as Canada and the EU is leading to some Dollar selling through January."

"Our base case does not build in coordinated intervention, but looking across history, the most effective FX intervention episodes by Japanese authorities have either come when the fundamentals shift or when there has been coordinated FX intervention with other authorities."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)