Wall Street Breakfast: Yen Weakens
Yen weakens
The yen has been under pressure after dovish remarks from Japan’s newly-elected Prime Minister Shigeru Ishiba and central bank policymakers pushed traders to scale back bets of another interest rate hike in the near term. The yen carry trade, which contributed to the global market meltdown in August, is also regaining momentum as traders expect the yen to weaken further.
What they said: “I don’t believe we are in an environment that requires an additional rate increase,” Ishiba said after meeting with Bank of Japan Governor Kazuo Ueda on Wednesday. Ueda said the BOJ would move cautiously on rate hikes. On Thursday, dovish BOJ policymaker Asahi Noguchi said the central bank should patiently maintain loose monetary conditions. To note, Noguchi opposed July’s rate hike as he believed Japan’s economy was vulnerable to downside risks.
Yen declines: As the odds of rate hikes dim, the yen weakened against the U.S. dollar while Japanese stocks rose. The yen (USD:JPY) briefly dropped to about 147 overnight, its lowest level in at least a month, but has since recovered to around 146.4. Japan’s benchmark blue-chip Nikkei 225 Index (NKY:IND) ended 2% higher on Thursday, a day after it closed down 2.2%.
SA commentary: The yen posted its biggest drop in over two years on Wednesday after Ishiba’s comments. This was because of “indications that the new government may not be persuaded that deflation has been defeated, and comments by Ueda suggesting that the uncertainty of the global economy may deter it from hiking rates in the near term,” said Seeking Alpha analyst Marc Chandler. He also noted that the yen is currently the weakest of the G10 currencies.