A 10-Minute Review of This Week's Global Economy (September 21–September 25)
Financial markets this week moved a bit differently than last week.
Despite the Bank of Japan raising interest rates last week, the yen weakened, briefly reaching the 158 yen per dollar range.
Meanwhile, oil prices fell, and U.S. stocks rose in response, with the Nasdaq hitting an all-time high.
Furthermore, a U.S.-China summit was held, where both countries discussed issues such as AI and trade.
Following last week’s focus on interest rates, oil, and exchange rates, this was another week of significant movement.
Once again, we will quickly summarize the six most notable news items from this week’s global economy for you.
1. The yen weakens despite the BOJ rate hike. Dollar-yen hits the 158 range.
Last week, the Bank of Japan raised its policy interest rate to 1.25%.
However, this week, rather than strengthening, the yen continued to weaken.
On September 21, the dollar-yen briefly rose to the high 157 range, heightening market caution regarding potential currency intervention. The fact that two members opposed the BOJ’s rate hike and the lack of a strong message regarding further rate hikes have made investors hesitant to buy the yen.
You might wonder, “Why did the yen weaken even after a rate hike?”
But exchange rates look at how much the interest rate gap will narrow in the future rather than just the policy rate itself.
If expectations that the BOJ will raise rates at a rapid pace recede, the yen becomes easier to sell.
2. Oil prices fall, briefly dipping below $100.
Oil prices, which had been troubling the market until last week, saw a change in trend this week.
Although caution regarding the situation in the Middle East remains, expectations for the restoration of Saudi Arabian pipelines and the recovery of oil exports have spread, causing oil prices to fall.
On the 22nd, Brent crude briefly fell below $100, reaching its lowest level in about two weeks.
If oil prices stabilize, concerns about inflation naturally ease a little as well.
Last week, the trend was “higher oil prices → inflation → rising interest rates,” but this week it was the opposite.
Lower oil prices became a factor supporting the stock market
That was the major point of this week.
3. Nasdaq hits an all-time high on lower oil prices and AI popularity
US stocks showed quite strong movement this week.
In the US market on the 21st, the Nasdaq hit an all-time high.
Expectations for AI-related stocks rose again, leading to heavy buying of semiconductor stocks and others. Furthermore, the decline in crude oil prices and US long-term interest rates provided a tailwind for the stock market.
In the AI sector specifically, optimism regarding AI investment strengthened once again, driven by expectations for Meta’s new AI assistant.
Last week, there was a sense of concern about whether stocks would be okay following the Fed’s interest rate hike, but this week saw a complete turnaround.
Interest rates settle down → AI stocks are bought → Stock indices rise
That was the trend.
The market really does change its mood in just one week, doesn’t it?
4. Japan’s manufacturing PMI is 54.1. Expansion for 9 consecutive months
Japan’s manufacturing PMI for September was 54.1.
Although it fell from 54.9 in August, it remains above the 50-point threshold for economic assessment, meaning manufacturing activity has been expanding for nine consecutive months.
On the other hand, growth in production and new orders has slowed slightly. Demand from overseas remains strong, with export orders supporting the overall figures.
In other words,
“Japan’s manufacturing sector is still healthy. However, the momentum has calmed down a bit.”
That seems like an easy way to look at it.
For the Bank of Japan, the resilience of the economy is a key point when considering additional interest rate hikes.
Future trends in capital investment and personal consumption are also points of interest.
5. Chinese yuan hits a 3.5-year high. Attention also on the US-China summit
In China this week, the yuan rose against the dollar to its highest level in about three and a half years.
This comes against the backdrop of the People’s Bank of China showing a stance of tolerating a stronger yuan to some extent.
The US-China summit was held at that very moment.
Chinese President Xi Jinping visited the US from September 23 to 25 and held talks with President Trump. A wide range of topics were discussed, including AI, trade, and supply chains.
During this summit, discussions continued on issues such as AI safety and trade, but no major agreements were reached on key concerns.
Given the significant impact of US-China relations on the global economy, this is something we should continue to keep an eye on.
6. Is the US economy resilient? Inflation remains a concern
In the United States, data indicating economic strength has emerged.
Retail sales in August grew significantly by 1.2% month-on-month, confirming the resilience of consumer spending.
On the other hand, import prices are also rising, making it difficult to say that inflationary pressure has completely subsided. Fed officials have also pointed out the possibility that strong demand is pushing up inflation.
In other words, the US economy is in a somewhat complicated state of
“The economy is surprisingly strong. But precisely because of that, it is difficult to lower interest rates.”
Even after the Fed raised interest rates in September, the possibility of additional rate hikes remains.
When looking at the stock market, it is hard to simply think that “a strong economy equals higher stock prices.”
Summary of this week’s key points
If I had to describe this week in one phrase, it was a week where crude oil prices stabilized and a sense of relief returned to the stock market.
Last week, the market was quite cautious due to interest rate hikes by the Fed and the Bank of Japan, compounded by rising crude oil prices.
However, crude oil prices fell this week.
US long-term interest rates also stabilized, and with the addition of buying in AI-related stocks, US stocks hit record highs.
Meanwhile, in Japan, the yen continued to weaken even though the Bank of Japan raised interest rates.
This was a quite interesting aspect of this week.
It is not just ‘rate hikes equal a stronger yen,’ but rather ‘how far will they raise rates from here’ that is important for exchange rates.
This is a point worth remembering when looking at Japanese stocks in the future.
And another thing to be concerned about is inflation in the U.S.
Since the economy is strong while inflationary pressure remains, how much further the Fed will continue to raise rates is likely to remain a major theme for the market.
From next week onward,
crude oil, U.S. long-term interest rates, the dollar-yen, and AI stocks
I think that if you keep an eye on these four things as a set, it will become much easier to understand market movements.
It is quite a busy market, in a different sense from last week.
Let’s continue to keep checking next week as well.