Morning from Copenhagen.

Big day ahead today with the US CPI report at 14:30 CET (our best guess is 0.25% in both headline and core), and Trump is scheduled to make final remarks on the steel tariffs later today, detailing the exact scope and any potential country exclusions. Both the Japanese and Indian prime ministers have traveled to the US over the past week, and from the outside, it looks like these two countries could be on the exclusion list. However, markets have yet to react positively to the steel news, with both NIFTY 50 and USDJPY responding quite materially to the headlines over the past two days.

The testimony from BoJ Governor Ueda this morning is the obvious trigger for USDJPY rallying overnight, even though the clear message from his speech was an effort to talk JPY rates higher. This leaves us in a very puzzling situation where every fundamental variable points lower for USDJPY, yet positioning remains heavy in the pair. This suggests that USDJPY remains the number one carry trade among fund managers—despite CHF now being the cheapest funding currency in the G10.

China and Europe are both bid in the equity space this morning, with consensus forming around the idea that Europe will not be hurt by reciprocal tariffs—potentially even benefiting from them. Meanwhile, China is rallying on the back of new stimulus measures aimed at Vanke (yet another real estate stimulus proposal) and improving tech sentiment.

We continue to see strong value in the short USDJPY bet, and the direction in real rate spreads remains downward, making it difficult for USDJPY to sustain its current levels.

Chart 1: Still massive value in the short USDJPY bet