Yen near flat; U.S.-Japan trade talks hit last-minute snag

The Japanese yen was little changed against the U.S. dollar on Tuesday in Asia. Developments on the U.S.-Japan trade front were in focus after reports suggested that the negotiations might have hit a last-minute snag.

Citing people familiar with the talks, Reuters reported that the two nations are still hoping to sign a trade deal this week.

However, the deal might be “limited” and is not expected to include changes to tariffs governing autos, the biggest source of the $67.6 billion U.S. trade deficit with Japan, Reuters said.

On the data front, Japan’s Jibun Bank Flash Manufacturing Purchasing Managers’ Index slipped to a seasonally adjusted 48.9 from a final 49.3 in the previous month, marking the quickest pace of deterioration since February.

The USD/JPY pair was little changed at 107.53 by 11:45 PM ET (03:45 GMT).

The EUR/USD pair was also near flat at 1.0988. Manufacturing activity in Germany fell to its lowest level since the financial crisis this month, data from IHS Markit showed. Germany’s services sector also grew at its slowest pace in nine months.

The USD/CNY pair was also largely unchanged. The People’s Bank of China said on Tuesday that Beijing has many monetary policy tools and large policy room to support its economy.

The central bank said in a statement that the country’s financial risks are generally under control and that the current interest rate levels are appropriate.

Incoming European Central Bank President Christine Lagarde said the Sino-U.S. trade war is weighing like a “big, dark cloud” on global economy.

“The longer this lingers, the more uncertainty sinks in. And if you’re an investor, if you’re an enterprise, whether small, medium size or big, you’re not going to invest, you’re going to wait. You’re going to sit and wonder where the supply chains are going to be organized,” Lagarde said in an interview CNBC.

Concerns that the tension between China and the U.S. might have escalated once again intensified over the weekend after the U.S. requested China to cancel a planned visit to U.S. farming regions over the weekend.

U.S. Treasury Secretary Steven Mnuchin later explained that the timing of the trip “wasn’t necessarily the perfect timing” but China have commited to buy more farm products and that “they’re doing that.”

The AUD/USD pair and the NZD/USD pair both gained 0.1%.