The dollar has surged in the last 24 hours (following President Trump's tax-reform comments) to its strongest against the yen in 10 days ahead of today's meeting of US and Japanese leaders.
The dollar has fallen steadily against the euro and yen since mid-December as Trump focused on protectionist trade policies, ran into opposition to some of his executive orders, and appeared to step away from the United States' long-held strong-dollar policy.
But the new president spoke out on stimulus measures on Thursday, promising a "phenomenal" tax plan within a few weeks in a White House meeting with airline executives... and the dollar shot higher.
As Reuters reports, while Trump may also discuss his concerns over a strong dollar with his Japanese counterpart, it is expected that whatever is said publicly after the meeting will focus on trade and investment deals. Analysts remain uncertain with regard exactly what President Trump wants from the dollar...
"Currency policy may not be a dominant topic at the summit, and that would be positive for the dollar," said Shusuke Yamada, chief Japan FX strategist at Bank of America-Merrill Lynch.
"The dollar is supported by the Trump announcement on taxation," said Thu Lan Nguyen, a currency strategist with Commerzbank in Frankfurt.
"But maybe investors will remain cautious for the time being. Since we saw what happened with the (blocked) travel ban ... uncertainty is still quite high about what Trump will do and what he can get through."
Paresh Upadhyaya, a portfolio manager and head of currency strategy at Pioneer Investments in Boston, said that in general the outlook for more gains for the dollar looked clearer after January's falls. But he also underlined the concerns about Trump's political style.
"The market was very overweight dollars and technically the position is a lot cleaner now," he said.
"What people had not priced in was Trump's 'social' policy and you are seeing some pricing in of that - that there is a risk of policy inertia, that there may be delays in some of those things that he wants to do."
Notably, traders have been very actively heging across this weekend's meetings as USDJPy implied vol has jumped to one-month highs...
