USD/JPY remains under last year’s double-top around 158.90 as China imposes export controls on goods with potential military use, though the yen shows little immediate reaction. Despite rising tensions, analysts see Japan and China entering a 'managed rivalry', with trade and diplomatic channels likely helping to contain economic disruption, BBH FX analysts report.

China imposes dual-use export controls on Japan

"USD/JPY is holding under last year’s double-top around 158.90. China escalated its diplomatic feud with Japan, but JPY implications are neutral. Yesterday, China imposed controls on exports to Japan with any military use. According to Bloomberg, China’s dual-use export control list features more than 800 items, ranging from chemicals, electronics and sensors to equipment and technologies used in shipping and aerospace."

"China justified the measure by citing last year’s remarks by Japanese Prime Minister Sanae Takaichi on Taiwan, hinting at the possibility of military intervention in the Taiwan Strait."

"Finding an exit from these tensions will be difficult because the crisis sets Japan’s security goals against China’s enduring drive to reclaim Taiwan. Instead, we sympathize with the view that Japan and China are entering a 'managed rivalry' rather than a complete rupture. Too much mutual prosperity depends on continued trade while diplomatic channels in both capitals provide crisis management tools."