Credit AgricoleEMFX has lost ground vs the USD since mid-August. EMFX traditionally underperforms in August compared to most other months of the year. So far, August 2022 does not seem to be an exception, even if the downward correction has not been that violent.There are actually many reasons to be cautious about EMs, given the possible squeeze between the risk of a global growth and trade slowdown on the one hand, and the tightening of global financing conditions on the other hand (not to mention geopolitical risk and uncertainty related to commodity prices). There are actually plenty of factors that could push up risk aversion. However, interestingly, the recent EMFX correction does not seem to be mainly related to pure risk aversion, far from it. It first of all reflects the climb of the USD. That makes a difference: it suggests that the EMFX short-term outlook is strongly dependent on the USD and the Fed (more than the investment perception of EMs).BNY MellonLate last week, Russia announced that importers of liquified natural gas (LNG) produced in a major field in the country’s far-eastern region would be subject to new payment terms. While this does not entail conversion of contracts into rubles yet, it is another reminder that supply issues in the LNG market could worsen. If so, the most impacted importers this time would likely be in Asia, especially the countries of South Korea and Japan. The global cyclical environment is already problematic for high value-added Asian exporters. South Korea and Japan are particularly dependent on imported energy, and the global rise in input costs is hurting margins further, just as external demand is falling. However, the difference between the two is that the Bank of Korea (BoK) has clearly acknowledged the need to manage inflation pressures, irrespective of the source. The BoK was one of the early movers on interest rates in Asia, and today’s hike highlights ongoing emphasis on inflation over growth. KRW remains, marginally, the best-held currency in iFlow.The Bank of Japan (BoJ) is at the opposite end of the spectrum policy spectrum, and the JPY remains underheld in iFlow. As US rates recover heading into Jackson Hole and rate differentials look set to widen further, the JPY will likely continue to face downward pressure, just as the global commodity price outlook continues to deteriorate. The situation with LNG is particularly acute for Japan as the country’s external energy dependency profile is arguably the worst in developed markets. As the chart below shows, Japan’s LNG imports have been running ahead of its imports of crude oil over the past 30 years.According to the International Energy Agency (IEA), while (as of 2019) oil represents just more than half of Japan’s total financial energy consumption (TFC), it is primarily supplied to industry (43% of TFC) and Transport (97% of TFC). Much like Europe, LNG’s share of TFC is much larger for residential (26%) and services (16%). On a structural basis, the share of fossil fuels in only expected to decline to around 75% in 2023, from close to 90% at present, the bulk of which still needs to be imported. As of 2019, the IEA noted that Japan’s self-sufficiency rate for energy was at only 12%, “the second-lowest among IEA member countries after Luxembourg and far below the median value of around 50%”.