Lee Hardman, Currency Analyst at MUFG, notes that the yen has strengthened in the Asian trading session in part reflecting more risk-averse trading conditions as the Shanghai Composite equity index has fallen sharply again by almost 3%. Key Quotes “The PBoC has set the daily fixing rate for USD/CNY higher for the fifth consecutive day which is contributing to more risk aversion conditions overnight. The outcome from the G20 meeting has also disappointed more optimistic expectations by not including a specific deal on using fiscal policy to stimulate growth. Rather the final communique just included the less specific statement that “we will use fiscal policy flexibly to support to strengthen growth, job creation, and confidence”. The G20 acknowledged that “downside risks and vulnerabilities have risen against a backdrop of volatile capital flows, a large drop in commodity prices, escalated geopolitical tensions, the shock of a potential UK exit from the EU and a large and increasing number of refugees in some regions”. Yet G20 members have signalled that current non-crisis conditions do not yet warrant a co-ordinated crisis policy response. Recent market volatility was also described as not fully reflecting the underlying fundamentals of the global economy. More interestingly the G20 communique emphasized that “monetary policy alone cannot lead to balanced growth” although it will continue to support economic activity and ensure price stability. Some concern was expressed about the BoJ’s recent decision to introduce negative rates which was seen as an attempt to weaken the yen. It prompted the G20 to strengthen the wording in their communique that “we reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes” adding that they “will consult closely on exchange markets”. The specific G20 discussions about Japan’s currency policy may prompt the BoJ to be more cautious when easing monetary policy further which has contributed to the stronger yen overnight. China’s currency policy was also in focus at the G20 meeting. IMF managing director Christine Lagarde was reassured by comments from Chinese policymakers stating that “on the issue of devaluation of the renminbi, I think we heard loud and clear that there’s no intention, no determination, no decision whatsoever to devalue the currency”. US Treasury Secretary Lew welcomed the communication from Chinese policymakers in recent days as well stating that it has helped not just ourselves but all observers to understand more clearly their current currency policy.” For more information, read our latest forex news.