TOKYO (Reuters) -Japan’s reflationist advocates of expansionary fiscal policy are making a comeback in economic decision-making with some hand-picked by Prime Minister Sanae Takaichi to fill posts in key government panels.
The move heightens the chance proponents of former premier Shinzo Abe’s “Abenomics” stimulus will yield influence on the fiscal and monetary policies of Takaichi, who herself is known as an advocate of loose fiscal and monetary policy.
Among the reflationist academics, former Bank of Japan Deputy Governor Masazumi Wakatabe will join the Council of Economic and Fiscal Policy as one of the four private-sector members, the government said on Friday.
As the government’s top economic panel, the council lays out Japan’s long-term fiscal blueprint and policy priorities. Key economic ministers and the BOJ governor participate in the discussions.
Known as a proponent of aggressive monetary and fiscal stimulus, Wakatabe served at the BOJ from 2018 to 2023 when it was sustaining a massive asset-buying programme deployed under then governor Haruhiko Kuroda.
In an interview with Reuters last month, Wakatabe said the BOJ can raise interest rates if prospects of durably hitting its 2% inflation target improve – but added that doing so could this year could be difficult.
Toshihiro Nagahama, an economist at Dai-ichi Life Research Institute who has advocated steps to stimulate demand, was also appointed as a private-sector member of the council.
“Given how this council discusses key economic and fiscal policies, we appointed members who are suitable under the Takaichi administration after consulting with the prime minister,” Minoru Kiuchi, economic revitalisation minister who oversees the council, told a news conference on Friday.
The appointments contrast with those under previous premier Shigeru Ishiba such as BNP Paribas economist Mana Nakazora, who had called for fiscal discipline and faster normalisation of the BOJ’s ultra-loose monetary policy.
The Takaichi administration has already appointed Takuji Aida, an economist seen as close to the premier, to join her flagship panel tasked to lay out Japan’s growth strategy.
Aida has said Japan should pursue expansionary economic policies until the output gap, which is currently around zero, exceeds 2%. He also calls for a shift away from what he saw as current policies that prioritise fiscal consolidation over steps to stimulate demand.
Japanese stock prices have risen since Takaichi was elected Japan’s first female prime minister on October 21 on market expectations that she will deliver a big spending package backed by low interest rates to reflate the economy.
LONDON (Reuters) -The U.S. Federal Reserve has moved back into line with other major rate setters after it cut rates by a quarter point on Wednesday but pushed back against market bets that it would keep going as the Washington shutdown fogs up its forecasting lens.
The Bank of Japan and European Central Bank left rates unchanged on Thursday.
Here’s where 10 major central banks stand after the latest round of meetings:
1/ SWITZERLAND
The Swiss National Bank cut its key rate to 0% in June and is widely expected to hold steady with markets pricing a long pause.
In its first set of minutes detailing its rate setting discussions, published last week, the SNB quashed market speculation that it would return to negative rates to stop the strong franc pushing the sluggish economy into deflation.
2/ CANADA
The Bank of Canada, battling an economic slowdown exacerbated by U.S. tariffs and the inflationary impact of the trade war, cut rates to a more than three-year low of 2.25% on Wednesday.
It also sent strong signals that easing ends here and traders see more than 60% odds on the BoC standing pat until December 2026.
3/ SWEDEN
Sweden’s Riksbank meets next week after cutting rates to 1.75% in September and saying it expects that elevated inflation will prove transitory.
Money markets price in less than a one in five chance of further easing before 2026 as domestic inflation stays sticky, which has sent traders piling in to Sweden’s crown. The currency has risen 15% against the dollar year-to-date.
4/ NEW ZEALAND
The Reserve Bank of New Zealand cut rates by a punchy 50 basis points (bps) to 2.5% this month in an attempt to prop up a frail economy.
Markets see a good chance of a further cut in late November, though inflation sitting at the top of the RBNZ’s 1-3% target band could be a complication.
5/ EURO ZONE
The ECB on Thursday matched traders’ expectations and held the bloc’s main deposit rate at 2% for a third straight meeting.
Traders viewed this ECB easing cycle as almost over, pricing in less than a 50% chance of further easing by July 2026.
6/ UNITED STATES
The Fed on Wednesday executed a widely flagged 25 bps cut but pushed back against market bets for more by warning that data gaps caused by the U.S. government shutdown were clouding its forecasting lens.
“If you’re driving in the fog you slow down,” Chair Jerome Powell said in his post-announcement press conference.
The rate cut drew dissent from two policymakers, with Stephen Miran again calling for a deeper reduction and Kansas City Fed President Jeffrey Schmid favoring no cut given above-target inflation.
Traders price a 70% probability of a 25 bps December cut, down from 84% ahead of Wednesday’s decision.
7/ BRITAIN
The Bank of England is another major rate setter that is signalling cautious moves from here as it kept rates unchanged at its last meeting and said inflation risks remained high.
Traders expect another hold on November 6 but markets price a 60% chance of a December cut after above-target UK inflation at least held steady in September.
8/ AUSTRALIA
The Reserve Bank of Australia has cut rates by 75 bps since February but hotter-than-expected inflation encouraged it to hold rates steady and turn more hawkish in September.
That trend has continued, pushing expectations for the next cut forward to at least February 2026..
9/ NORWAY
Norway’s central bank eased borrowing costs by 25 bps to 4.0% in September but signalled further cuts were less likely because underlying inflation was rising. That has helped the crown keep powering higher against the dollar, with a 12% gain for the year so far.
10/ JAPAN
The Bank of Japan, the sole central bank in hiking mode, kept rates steady on Thursday but repeated its pledge to keep increasing borrowing costs if the economy moves as it projects, shifting investor focus to December’s meeting.
The yen weakened after the announcement.
U.S. Treasury Secretary Scott Bessent this week called for speedier BOJ rate hikes to avoid weakening the currency too much.
(Reporting by Alun John and Naomi Rovnick, Editing by Dhara Ranasinghe and Ed Osmond)
TOKYO (Reuters) -Shinjiro Koizumi, launching a bid to become Japan’s next prime minister, pledged on Saturday to focus on revitalising the economy by boosting wages and productivity to counter rising prices.
Koizumi, seen as a frontrunner in the ruling party’s leadership race, said Japan must shift the focus of economic policy from beating deflation to one better suited to an era of inflation.
“Japan’s economy is in a transition phase from deflation to inflation,” Koizumi told a news conference announcing his bid for president of the Liberal Democratic Party.
“We must have wage growth accelerate at a pace exceeding inflation, so consumption becomes a driver of growth,” Koizumi said, adding that the economy would be his policy priority.
On monetary policy, Koizumi said he hoped the Bank of Japan would work in lock step with the government to achieve stable prices and solid economic growth.
Koizumi and veteran fiscal dove Sanae Takaichi are seen as the top contenders in the October 4 party race after Prime Minister Shigeru Ishiba’s decision this month to step down.
The next LDP leader is likely to become prime minister as the party is by far the largest in the lower house of parliament, although the LDP lost its majorities in both houses under Ishiba, so the path is not guaranteed.
Koizumi said if he were to become prime minister, his government would immediately compile a package of measures to cushion the economic blow from rising prices, and submit a supplementary budget to an extraordinary parliament session.
“While being mindful of the need for fiscal discipline, we can use increased tax revenues from inflation to fund policies for achieving economic growth,” he said.
The LDP race has drawn strong attention from market players and led to a rise in super-long government bond yields on the view the next leader could boost fiscal spending.
Investors have also focused on the candidates’ view on monetary policy, as the BOJ eyes further hikes in still-low interest rates. Takaichi had criticised the BOJ’s rate hikes in the past but made no comment on monetary policy at a news conference on Friday.
Koizumi said that if chosen as prime minister, his government would slash tax on gasoline, increase tax exemptions for households and take steps to raise average wages by 1 million yen ($6,800) by fiscal 2030, Koizumi said.
He also pledged to increase government support on corporate capital expenditure to boost Japan’s manufacturing capacity. “We need to build a strong economy backed by growth in both demand and supply,” Koizumi said.
($1 = 147.9400 yen)
(Reporting by Leika Kihara; Editing by William Mallard)
TOKYO (Reuters) – Bank of Japan policymakers discussed the need for caution over near-term interest rate hikes with some voicing concern over unstable financial markets and the U.S. economic outlook, a summary of their September meeting showed on Tuesday.
“Overseas economic uncertainties have heightened. We should scrutinise overseas and market developments closely for the time being. In terms of further adjustment to our monetary support, it should be done when such uncertainties are reduced,” one member was quoted as saying.
Given economic and market uncertainties, it was undesirable for the BOJ to raise rates further at this point as doing so might suggest the central bank was shifting to a full-fledged monetary tightening cycle, another opinion showed.
At the September meeting, the BOJ kept short-term rates steady at 0.25% and its governor said it could afford to spend time eyeing the fallout from global economic uncertainties, signalling it was in no rush to raise borrowing costs further.
(Reporting by Leika Kihara; Editing by Jacqueline Wong and Sam Holmes)
Alvin Tan, Head of Asia FX Strategy at RBC Capital Markets cites elevated inflation rates and slowing growth in Australia as proof that the easing path of the RBA will be more gradual, with rate cuts starting next year. Additionally, he examines the BOJ’s policy normalization path, saying that a rate hike would help to strengthen the yen in the long-term, but it would not be a “smooth ride” higher.
(Bloomberg) — Asian equities pared early losses Thursday, continuing a bout of volatile trading as investors digest signals from central banks on the path ahead for interest rates.
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Benchmarks in Australia, South Korea, Taiwan and China dropped, with tech giants among the hardest hit. A region-wide gauge of the tech sector fell by around 2%, with the likes of SK Hynix Inc. down as much as 4.8% and Taiwan Semiconductor Manufacturing Co. falling as much as 2.8%. That followed a 1.2% drop for the tech-heavy Nasdaq 100 Index on Wednesday.
Japan’s Topix Index rebounded from a loss of as much as 1.8%, and the yen eraased an advance of up to 0.9%. A Thursday summary of opinions from last week’s Bank of Japan meeting, when it raised rates, showed one member identify the neutral rate at 1%, while another called for timely rate increases to avoid rapid hikes.
Global markets have been rocked in the past week as investors prepare for the US and Japanese central banks to move in opposite directions, in turn undermining the yen’s role as a cheap source of funding for financial assets.
The unspooling of the carry trade has further room to run but the declining velocity of the shift allows investors to breathe “a sigh of relief,” according to Quincy Krosby at LPL Financial. “A softer dollar, driven by the markets perception that the Fed will soon initiate an easing cycle, should help support a stronger yen — a negative for the trade.”
Three-quarters of the carry trade has been unwound as the recent slump wiped out all positive year-to-date returns, according to strategists at JPMorgan Chase & Co.
The dollar was slightly weaker Thursday, partly reversing moves from the prior session. Lackluster demand for a 10-year Treasury auction and $31.8 billion in debt offerings from blue-chip companies were headwinds.
The Treasury auction result is “consistent with our view that we’re due for a continued correction higher in yield in the near-term,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. “The repricing following what was really just a moderately weak payrolls report seems way overdone.”
US Markets
The S&P 500 closed 0.8% lower as Nvidia Corp. led losses in megacaps. Super Micro Computer Inc. tumbled 20% on disappointing earnings. In late trading, Warner Bros. Discovery Inc., the parent of CNN and TNT, plunged after posting a charge of $9.1 billion as it wrote down the value of its traditional TV networks.
Shares in Sony rallied Thursday after the Japanese consumer electronics company boosted its operating income guidance for the full year.
Markets have been in a tailspin since weak economic data last week fueled worries that the Federal Reserve’s decision to hold rates at a two-decade high is risking a deeper economic slowdown.
JPMorgan economists now see a 35% chance that the US economy tips into a recession by the end of this year, up from 25% as of the start of last month.
“Stocks remain vulnerable,” said Fawad Razaqzada at City Index and Forex.com. “More evidence of a bottom is needed to excite the bulls again. Overall, sentiment remained cagey. Not many people were confident to buy this latest dip, especially with US CPI looming next week.”
Oil climbed as investors remained on edge over the possibility of a retaliatory strike from Iran on Israel. Gold rose for the first time in six sessions.
Key events this week:
Germany industrial production, Thursday
US initial jobless claims, Thursday
Fed’s Thomas Barkin speaks, Thursday
China PPI, CPI, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 11:29 a.m. Tokyo time
Japan’s Topix rose 0.2%
Australia’s S&P/ASX 200 fell 0.3%
Hong Kong’s Hang Seng fell 0.3%
The Shanghai Composite fell 0.4%
Euro Stoxx 50 futures fell 0.9%
Nasdaq 100 futures rose 0.3%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0930
The Japanese yen was little changed at 146.65 per dollar
The offshore yuan was little changed at 7.1812 per dollar
The Australian dollar rose 0.3% to $0.6540
Cryptocurrencies
Bitcoin rose 4.5% to $57,637.55
Ether rose 4.8% to $2,463.01
Bonds
The yield on 10-year Treasuries declined two basis points to 3.92%
Japan’s 10-year yield advanced two basis points to 0.895%
Australia’s 10-year yield advanced two basis points to 4.09%
Commodities
West Texas Intermediate crude rose 0.5% to $75.57 a barrel
Spot gold rose 0.2% to $2,388.37 an ounce
This story was produced with the assistance of Bloomberg Automation.
(Reuters) – A look at the day ahead in Asian markets.
Asian markets on Monday get their first chance to react to the extraordinary market moves on Friday that saw stocks and bond yields tumble, and volatility and rate cut expectations soar following an unexpectedly soft U.S. employment report.
That ‘risk off’ sentiment and momentum is sure to spill over into Asia, which was already wobbling last week after the Bank of Japan’s hawkish policy tilt, yet more sluggish Chinese economic data and some weak U.S. tech earnings.
The MSCI Asia ex-Japan stock index slumped 2.5% on Friday, its biggest fall in over two years, and Japan’s Nikkei 225 index tanked 5.8% for its biggest fall since March 2020. Japan’s broader Topix’s 6.1% slide marked its worst day since 2016.
Given Friday’s U.S. payrolls-fueled selling on Wall Street, a sharp selloff in Asia early Monday is likely. Friday’s market gyrations may prove to be excessive, but they are worth noting.
The two-year U.S. Treasury yield plunged 30 basis points, its steepest one-day fall since the U.S. regional banking shock of March last year. Its weekly fall of 50 bps is in line with those seen in the COVID-19, Lehman, 9/11 and Black Monday crises.
In equities, the VIX volatility index at one point on Friday had doubled from the previous day.
The stampede to unwind carry trades helped push the yen up nearly 5% against the dollar last week – the Japanese currency has only had three better weeks in the past 25 years.
Plunging U.S. bond yields may ease financial conditions – Goldman Sachs’s emerging market financial conditions index on Friday fell to its lowest since March – but they’re loosening for ‘bad’ reasons, namely recession fears.
Hopes for the much-vaunted U.S. economic ‘soft landing’ appear to have completely evaporated, replaced by fears of a ‘hard landing’.
Traders are now attaching a 70% chance to the Fed cutting rates by half a percentage point next month, and are pricing in 115 basis points of easing by the end of the year and over 200 bps by next June.
High yield corporate debt markets will be worth watching closely. This is where the first signs of a ‘credit event’ usually appear, heralding wider retrenchment across businesses, rising unemployment and ultimately recession.
High yield U.S. debt spreads over Treasuries jumped on Friday to the widest of the year of more than 370 bps, but that was mostly due to the slump in government bond yields rather than investors dumping corporate debt. If that dynamic changes, hold onto your hats.
Monday’s economic and events calendar in Asia includes service sector purchasing managers index data from across the continent including China, inflation figures from Thailand, GDP numbers from Indonesia and some Japanese earnings.
Here are key developments that could provide more direction to markets on Monday:
– China ‘unofficial’ services PMI (July)
– Thailand consumer price inflation (July)
– Indonesia GDP (Q2)
(Reporting by Jamie McGeever; Editing by Diane Craft)
Bank of Japan Gov. Kazuo Ueda said Tuesday that the bank was getting closer to finally achieving sustainable inflation, adding to market expectations for a policy change later this year.
“The likelihood of achieving our inflation target is gradually rising,” Ueda said at a news conference.
Ueda said the BOJ would consider whether to discontinue monetary easing, including negative interest rates and its stock-buying program, when it becomes certain about reaching the goal. He added that financial conditions would likely remain very accommodative even if the bank scraps its negative rate policy.
Write to Megumi Fujikawa at megumi.fujikawa@wsj.com
(Bloomberg) — US equity futures edged higher while the dollar extended losses as trading resumed after the Christmas holiday amid investor expectations for earlier and deep interest rate cuts next year.
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Stocks in Asia were mixed in a thin trading session with markets including Hong Kong, New Zealand and Australia shut. Emerging Asian currencies rose, with South Korea’s won and Taiwan dollar leading gains against a weak dollar that fell to its lowest level in almost five months.
Some on Wall Street are positioning for further stock gains ahead as the session kicked off the start of the “Santa Claus rally” — a seasonal trend where equities tend to climb into the first few days of the new year. The S&P 500 notched an eight-week winning run on Friday — the longest in more than five years on signs price pressures in the US were easing. Ten-year US Treasury yields slid two basis points to 3.88%.
“As for emerging markets in Asia, ‘silent night’ says much, given that there isn’t particularly inspired trading, with Wall Street equivocating ahead of Christmas,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “It looks like a case of averting the China drag and hanging on to earlier Santa rallies being the best case for Boxing day – boxing in risks.”
Stocks fell in mainland China, with the benchmark CSI 300 Index headed for its first drop in four sessions, as investor sentiment remains weak even after the authorities softened their stance following a move last week to tighten curbs on the videogame industry.
Elsewhere, Singapore dollar was little changed after core inflation edged lower in November, giving the central bank room to extend its monetary-policy pause next month to support the economy.
Japan’s auction of two-year sovereign debt saw tepid investor appetite, sending a gauge of demand to the weakest in a year, amid speculation the central bank will end negative interest rates in 2024. Its labor market remained relatively tight in November, keeping pressure on employers to boost wages in order to fill positions.
The benchmark Topix index traded within tight ranges after Bank of Japan Governor Kazuo Ueda’s speech on Monday that suggested he’s in no hurry to end the ultra-easy monetary policy.
“With the Nikkei 225 at high levels, year-end selling to lock in profits and losses is likely to weigh on the upside,” says Hideyuki Ishiguro, senior strategist at Nomura Asset Management.
In the corporate world, Chinese gaming shares outperformed the benchmark after a number of companies announced plans to repurchase their shares following news of the latest government curbs on the sector. Cathie Wood last week made her first purchase of shares in LY Corp. in over a year, indicating a possible shift toward more positive sentiment on the operator of Yahoo! Japan and popular messaging app Line.
Iron ore futures hit $140 a ton, highest in 18 months as traders keep a close eye on China’s steel outlook for the next year. Oil rose slightly after posting the largest weekly gain in more than two months, with shipping disruptions in the Red Sea in focus after a spate of Houthi attacks against vessels in the vital waterway.
Geopolitical tensions still remain front of investors minds into the new year as tensions in the Middle East look set to increase. Iranian President Ebrahim Raisi said Israel will pay a price for killing a senior commander of its Revolutionary Guard in air strike in Damascus on Monday. The US accused Iran at the weekend of an attack on a tanker in the Indian Ocean.
READ: Israel Sees Defense Spending Climbing $8 Billion as War Rages
US Growth Resilience
Global markets have been buoyed in recent months as traders bet major central banks including the Federal Reserve will aggressively cut interest rates next year as inflation falls. Bond yields have tumbled while the S&P 500 is nearing a fresh record.
Data released last week showed signs of resilience in US growth while the Fed’s preferred underlying inflation metric barely rose in November. Additional reports Friday showed consumers were also gaining conviction that inflation in the world’s largest economy was on the right track despite a bumpy housing market recovery.
That helped cement investor expectations for earlier and deeper interest rate cuts next year, despite pushback from several Fed policymakers. Swaps traders are betting interest rates will be eased by more than 150 basis points in 2024, double the Fed’s forecast.
Makoto Kuroda of Goldman Sachs says “there are positives to potentially lower Fed rates, such as lower dollar funding costs or lower unrealized loss on U.S. Treasurys.”
Kazuo Ueda, governor of the Bank of Japan (BOJ), gestures as he speaks during a news conference at the central bank’s headquarters in Tokyo, Japan, on Tuesday, Oct. 31, 2023.
Kiyoshi Ota | Bloomberg | Getty Images
Japan’s central bank expectedly left its ultra-loose monetary policy unchanged at its final policy meeting this year in light of “extremely high uncertainties” affecting the world’s third-largest economy, pushing any likely unwinding to the new year.
The Bank of Japan decided unanimously to keep interest rates at -0.1%, while also sticking to its yield curve control policy that keeps the upper limit for 10-year Japanese government bond yield at 1% as a reference.
“With extremely high uncertainties surrounding economies and financial markets at home and abroad, the Bank will patiently continue with monetary easing, while nimbly responding to developments in economic activity and prices, as well as financial conditions,” the BOJ said in a policy statement Tuesday.
The Japanese yen weakened after the BOJ decision and was trading at about 143.5 against the greenback in midday trade, while the Nikkei 225 stock index climbed 1%. Yields on the 10-year Japanese government bonds were largely unchanged.
With Bank of Japan’s possible unwinding of its ultra-loose monetary policy being challenged by a slowing economy and cooling inflation, most economists expect Governor Kazuo Ueda to only make changes next year, once the annual spring wage negotiations confirm a trend of meaningful wage increases.
Ueda is due to meet the press in Tokyo later Tuesday, where he may offer forward guidance on the BOJ’s future path of action.
Comments from Ueda earlier in December had raised expectations of a change in monetary policy, sparking a rally in the yen. The BOJ has been cautious in unwinding its long-held ultra-loose monetary policy, wary that any premature move could jeopardize recent nascent improvements.
On Friday, the Japanese central bank also said it expects core inflation — which it defines as inflation that excludes food prices — to stay above 2% through fiscal 2024. Despite core inflation exceeding its stated 2% target for 19 consecutive months, the BOJ has “patiently continued” with its super accommodative monetary policy.
The so-called “core core inflation” — inflation minus food and energy prices — has exceeded BOJ’s 2% target for 13 straight months now.
For the BOJ, the preference is for inflation to be driven by domestic demand, which is more sustainable and stable. The bank believes wage increments would translate into a more meaningful spiral, encouraging consumers to spend.
Japan’s umbrella labor union, Rengo, said in October that it would demand wage hikes of at least 5% at next year’s spring wage negotiations. The union managed to secure the biggest raise in three decades at this year’s talks in March.
The BOJ’s monetary policy is complex and multi-faceted due to the various quantitative easing tools it has used to reflate the world’s third-largest economy in the last three decades.
Its super-easy posture also sets it apart as an outlier at a time when other major central banks have raised rates to combat stubbornly high inflation. This policy divergence has partly accounted for pressures on the Japanese yen and government bonds.
This is a developing story. Please check back for more updates.
(Bloomberg) — Stocks fell and bond yields rose amid speculation that the Bank of Japan will soon scrap the world’s last negative interest-rate regime.
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The yen strengthened 1% against the dollar and Japan’s 10-year yield jumped as much as 13 basis points. Investors are speculating that higher rates could come earlier than expected following comments from BOJ Governor Kazuo Ueda on more challenging policy ahead and a weak auction of long-term debt.
Global markets moved in response, with European stocks opening lower. The yield on 10-year US Treasuries added seven basis points and the dollar fell for the first time in four days.
“When it comes to the last 24 hours, markets have seen a sharp reversal in tone, with bond yields seeing a significant increase overnight and equities losing ground,” said Jim Reid at Deutsche Bank AG.
“The main catalyst for this have been comments from Bank of Japan officials, which have suddenly seen investors ramp up the chances that the BoJ could bring an end to their negative interest rate policy.”
Overnight-indexed swaps at one point on Thursday showed an almost 45% chance that the BOJ would end the policy this month.
Traders are also focused on Friday’s US jobs report after private payrolls data that fell short of estimates in a sign of softening in the employment market.
Fed policymakers meet next week for the last time in 2023. While no change is expected in their target for the federal funds rate, they are scheduled to release quarterly forecasts that could alter market-implied expectations. Those bets have been gravitating toward more easing next year in response to weaker-than-forecast economic data.
“Inflation fears are melting,” said Prashant Newnaha, a rates strategist at TD Securities. “Central banks believe they have clearly done enough and may need to cut, otherwise real rates may be too high and restrictive.”
Oil stabilized after a five-day run of losses on signs that global supplies are eclipsing demand despite plans by OPEC+ to rein in its production into 2024. A key gauge for prices of raw materials earlier tumbled to the lowest level since August 2021.
Elsewhere, gold extended Wednesday’s gains, while bitcoin traded just below $44,000, a level not seen since June last year.
Key events this week:
Eurozone GDP, Thursday
Germany industrial production, Thursday
US wholesale inventories, initial jobless claims, Thursday
Germany CPI, Friday
Japan household spending, GDP, Friday
Reserve Bank of Australia’s head of financial stability Andrea Brischetto speaks at Sydney Banking and Financial Stability conference, Friday
US jobs report, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.2% as of 8:03 a.m. London time
S&P 500 futures were little changed
Nasdaq 100 futures were little changed
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index fell 0.4%
The MSCI Emerging Markets Index fell 0.5%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.1% to $1.0778
The Japanese yen rose 1.1% to 145.64 per dollar
The offshore yuan rose 0.2% to 7.1609 per dollar
The British pound rose 0.2% to $1.2581
Cryptocurrencies
Bitcoin was little changed at $43,828.74
Ether rose 0.6% to $2,260.95
Bonds
The yield on 10-year Treasuries advanced six basis points to 4.16%
Germany’s 10-year yield advanced two basis points to 2.22%
Britain’s 10-year yield advanced six basis points to 4.00%
Commodities
Brent crude rose 0.9% to $74.94 a barrel
Spot gold rose 0.2% to $2,029.03 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rita Nazareth, Jing Jin and Yumi Teso.
(Bloomberg) — The yen briefly weakened beyond 150 against the dollar again as the wide yield gap between Japan and the US continues to weigh on this year’s worst-performing major currency.
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It touched 150.11 per the greenback in early Asian trading on Monday before quickly recovering amid weight from options-related dollar selling and suggestions of algorithmic transactions. It was little changed at 149.87 at 11:30 a.m. in Tokyo.
Traders are wary of betting on further depreciation given the risk of intervention from authorities in Japan. Finance Minister Shunichi Suzuki said last week that it is important to have stability in foreign exchange markets and for them to reflect fundamentals.
“Dollar-yen broke the 150 line during hours with low liquidity and less participants, probably led by speculators,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities Co. in Tokyo. “The topside of the currency pair is likely to become heavier in the Tokyo trading hours amid growing concerns about intervention, especially above the 150 line. People will continue to stay nervous.”
The yen’s rapid recovery from above 150 also showed signs of being “triggered by algorithm transactions that were automatically executed due to intervention concerns,” said Fukuhiro Ezawa, head of financial markets in Tokyo at Standard Chartered Bank.
The wide interest rate divide with the US is seen in the Treasury 10-year yield at 4.96%, which is almost six times that of Japan’s equivalent at 0.835%. The divergence in monetary settings is fueling the gap and Bank of Japan Governor Kazuo Ueda said Friday that the BOJ will continue patiently to keep settings accommodative in order to achieve the goal of stable and sustainable 2% inflation.
Traders are on tenterhooks with a BOJ policy meeting approaching on Oct. 30-31, and tensions in the Middle East increasing uncertainty in global markets.
Investors are also digesting a Nikkei report that BOJ officials are pondering the question of whether to tweak yield-curve control program as domestic long-term interest rates float higher in tandem with those in the US. It didn’t say where it obtained the information.
“If the BOJ wants to see a stronger yen, I think they will need to do more than just widen the band yet again,” Rodrigo Catril, currency strategist at National Australia Bank in Sydney, said of the YCC program. “The market is right to be cautious.”
A tweak to the BOJ’s ultra-loose monetary policy this month could propel the yen to 145 against the dollar if the central bank also flags that a rise in interest rates is coming, according to RBC BlueBay Asset Management.
The central bank is likely to unwind its unusual policy of sub-zero rates during the first half of 2024, according to the majority of 315 respondents in a Bloomberg Markets Live Pulse survey.
Yet until Monday, the yen had hovered just below 150 per dollar since it went to 150.16 on Oct. 3. That move suddenly reversed, with it recovering to 147.43, stoking speculation that Japan had entered the market to prop up the currency. Senior government officials stuck to a strategy of keeping investors guessing on the following day by declining to clarify whether they had intervened.
Japan spent around ¥9 trillion ($60 billion) in September and October last year across three occasions in their first intervention to support the yen since 1998. This year the currency has weakened more than 12% against the dollar, making it the worst performer among its Group-of-10 peers.
Japan’s chief currency official Masato Kanda has said that as a general principle, rate hikes and interventions are ways to respond to excessive currency moves. He has vowed to take action if needed against excessive swings, but declined to say whether recent market moves were speculative.
Still, the International Monetary Fund has said that it sees no factors that would compel Japan to intervene in the foreign exchange market to support the yen.
–With assistance from Saburo Funabiki, Matthew Burgess and Daisuke Sakai.
(Updates with another strategist comment and latest price moves.)
People shop in a Manhattan store on July 27, 2023 in New York City.
Spencer Platt | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Streak shattered The Dow Jones Industrial Average finally ran out of steam and closed the day in the red, ending its 13-day winning streak. Other major U.S. indexes had a losing day as well. Asia-Pacific markets traded mixed Friday. China’s Shanghai Composite advanced 1.38%. Meanwhile, Japan’s Nikkei 225 briefly fell 2% after the Bank of Japan’s meeting, but recovered in afternoon trading.
‘Greater flexibility’ for the BoJ The Bank of Japan pledged to “conduct yield curve control with greater flexibility,” even as the bank said it would keep 10-year Japan government bonds within a range of “plus and minus 0.5 percentage points.” The BOJ also kept its short-term interest rate target at -0.1%. The Japanese yen rose to around 138.68 to the U.S. dollar, while yields for the 10-year JGB hit their highest level since September 2014.
What recession? The U.S. economy’s showing no signs of stopping. Gross domestic product grew at an annualized 2.4% rate in the second quarter, according to the Commerce Department. That’s higher than the 2% estimate from Dow Jones and the first quarter’s 2% growth. In other good news, the personal consumption price index rose 2.6% in the second quarter, down from 4.1% in the first.
Intel’s unexpected profit Intel returned to profit in the second quarter after two straight quarters of losses, even as revenue fell year-on-year around 15% to $12.9 billion. That’s because its gross margin was nearly 40% on an adjusted basis. Intel’s forecast for its third-quarter earnings was higher than analyst expectations. In sum, investors appeared pleased, pushing shares up more than 7% in extended trading.
[PRO] Better than tech stocks Tech stocks may have driven most of the gains in the stock market, but there are funds that have performed better than them. CNBC Pro’s Weizhen Tan combed Morningstar data and found 11 funds with five-year annualized returns higher than that of the S&P 500 Equal Weight Information Technology index.
Alas! It was exciting while it lasted, but the Dow Jones Industrial Average fell 0.67%, snapping its 13-day winning streak. We’ll have to wait longer — maybe for another century! — to see if it can tie the 14-day record it hit 126 years ago in 1897. (And perhaps in time to come market analysts will bemoan Honeywell, which sank 5.7% on worse-than-expected revenue and was the worst performer in the Dow.)
Other major indexes on Wall Street didn’t fare so well, either. The S&P 500 slipped 0.64% and the Nasdaq Composite lost 0.55% — even Meta’s 4.4% jump couldn’t offset a broader decline in the tech-heavy index.
One thing that isn’t losing momentum, however, is the U.S. economy. Second-quarter GDP growth handily beat analysts’ expectations, and it has consumers to thank. Consumer spending increased 1.6%. That doesn’t sound much, but when you consider how it makes up 68% of all economic activity during the second quarter, a small bump can have an outsized effect.
The U.S. economy hasn’t contracted since the second quarter of 2022. Other positive economic data released yesterday: Durable goods orders rose 4.7%, more than three times the estimate, and weekly jobless claims fell 7,000 to bring it below estimates. All those statistics make predictions of an imminent recession seem increasingly doubtful.
Of course, the strength of the economy makes it likelier that the Federal Reserve might hike rates again at its September meeting. This sentiment was reflected in the 2-year Treasury yield — typically the most sensitive to short-term interest rates — which jumped more than 10 basis points to 4.931% after the release of GDP data.
Still, DoubleLine Capital CEO Jeffrey Gundlach told CNBC that “the Fed should really be happy” with the current inflation rate, suggesting rates are as high as they should go. The personal consumer expenditures price index, the Fed’s favorite inflation gauge, comes out later today, and will give a sense if we’re indeed at the end of the hiking cycle — giving the Dow another shot at making history.
The yen plunged on Wednesday after the Bank of Japan decided to maintain its ultra-easy monetary policy, defying market expectations that rising inflation could force the central bank to move away from low interest rates.
The BOJ kept its yield curve control (YCC) targets unchanged as it concluded a two-day policy meeting on Wednesday. It left the short-term interest rate at an ultra-dovish minus 0.1% and the 10-year Japanese Government Bonds (JGB) yield around 0%.
The YCC policy is a pillar of the central bank’s effort to keep interest rates low and stimulate the economy.
“Japan’s economy, despite being affected by factors such as high commodity prices, has picked up as the resumption of economic activity has progressed while public health has been protected from Covid-19,” the central bank said in its quarterly outlook report, adding that slowdowns in overseas economies could put downward pressure on growth.
The Japanese yen tumbled against the US dollar shortly after the announcement. It last traded at 131.34 yen per dollar, down 2.5%. Last Friday, it hit a seven-month high of 127.46 against the greenback.
Last month, the BOJ shocked global markets by allowing the 10-year JGB yield to move 50 basis points on either side of its 0% target, in a move that stoked speculation the central bank may follow the same direction as other major economies by allowing rates to rise further.
The unexpectedly hawkish decision caused stocks to tumble, while sending the yen and bond yields soaring.
On the evening of December 19, the Bank of Japan (BOJ) announced it had increased its cap on 10-year bond yields from 0.25% to 0.5%, while keeping short- and long-term interest rates unchanged.
The cap at the 0.25% level had been suppressing global bond markets with the use of an unlimited money printer for Japanese debt. This in turn caused a significant deterioration of the yen against the dollar, while the BOJ used its immense pile of Treasurys to occasionally defend the currency against speculators.
While absolutely massive in its change for market dynamics, the move still leaves the BOJ far below its peers in terms of policy rate, which is mainly due to the demographics of Japan and its debt-to-GDP statistics.
This yield-cap increase, which was unexpected by economists, caused an immediate jump in the yen and a slide in global government bonds, sending shockwaves through global financial markets. It also led to a surge in Japanese bank stocks, as investors anticipated improved earnings for financial institutions.
Bank of Japan Governor Haruhiko Kuroda laughing as he hikes rates for the world.
As the BOJ tightens policy, Japanese debt becomes relatively more attractive and the yen appreciates. This causes rates to tighten in U.S. markets, but causes the dollar to weaken relative to foreign exchange markets.
As bond yields remain at elevated levels far above recent years, asset valuations based on discounted cash flows fall. While many market participants are waiting for the return of 2021-like conditions for various financial markets, understanding how the change in debt markets affects all other liquid markets and relative valuations is key.
A historic interest expense shock is occurring in tandem with the largest absolute drawdown in asset prices ever. We expect the turbulence only picks up from here.
While the bitcoin market has had a massive deleveraging of its own already, the “pain trade” (as many think of it) could simply be an extended period of sideways consolidation as the legacy market dominos start to fall at an increasing frequency.
We expect the next secular bull market to be spurred by accommodative monetary policy responses to the conditions that are developing now. Global financial market liquidity conditions, credit worthiness and asset price valuations likely fall further from here — until the fiat monetary overlords decide to start debasing. For better or worse, this is the name of the game on the fiat monetary standard.
Japan’s core consumer inflation accelerated to a 40-year high in October as a weak yen pushed up the cost of imported commodities, which were already surging due to global supply constraints.
The data suggests Japanese firms may be shaking off their deflationary mindset as they gradually raise prices of everything from fuel to food in response to higher costs.
The nationwide core consumer price index (CPI), which excludes volatile fresh food prices but includes energy, was 3.6% higher in October than a year earlier, versus a 3.5% rise expected by economists, and accelerating from the prior month’s 3.0% annual gain.
The jump was the largest since February 1982. It also confirmed CPI growth remained above the Bank of Japan’s (BOJ) 2% inflation goal for a seventh straight month.
“I haven’t changed my view that the rise will start to slow down soon,” said Takeshi Minami, chief economist at Norinchukin Research Institute, noting declines in global grain prices.
A slight rebound from the weak yen and planned government support for consumers to pay for higher energy bills would also rein in prices.
“I expect inflation to peak by year-end and the rise in prices to start diminishing in the new year,” Minami said.
Despite broadening price pressures, which are a growing concern for households, however, the BOJ will not join a global trend of tightening monetary policy through interest rate hikes.
BOJ Governor Haruhiko Kuroda reiterated on Thursday a pledge to maintain monetary stimulus to support a fragile economy still recovering from the COVID-19 downturn and facing inflation that remains weak by the standards of other developed countries.
Kuroda has argued that global commodity costs account for half of the magnitude of price rises and that cost-push inflation will not last long.
Japan’s consumer inflation will likely reach 3% for the current fiscal year, ending in March, but the pace will fall to half that rate next fiscal year as the commodity and other cost-push factors run their course, Kuroda has said.
In a sign subcontractors are struggling with wholesale price pressures, the corporate goods price index jumped 9.1% in the year to October.
