The USD/JPY currency pair experienced a modest increase in value, rising from around 155.95 to 156.15, a gain of 0.3%, following a speech by Bank of Japan Governor-nominee Kazuo Ueda. Market analysts suggest that Ueda’s statements, rather than their absence, have had a significant impact on market sentiment.
Asian markets exhibited a mixed performance on Thursday, with some key indices experiencing declines ahead of the release of a deluge of global earnings reports, including updates from prominent U.S. tech companies known as the ‘Magnificent Seven’. Japan’s benchmark Nikkei 225 suffered a 2.1% drop to 37,670.50, while South Korea’s Kospi lost 1.4% to 2,637.18. Hong Kong’s Hang Seng index managed a modest gain of nearly 0.1% to 17,215.51, but Shanghai’s Composite remained largely unchanged at 3,044.41. Meanwhile, markets in Australia and New Zealand were shuttered due to Anzac Day.
Attention is also directed towards the Bank of Japan, which commenced its two-day monetary policy meeting on Thursday. Market analysts have noted the remarkable weakness of the Japanese yen as a concern for the BOJ. The U.S. dollar strengthened against the yen, rising to 155.67 yen from 155.31 yen. The euro also gained ground, increasing to $1.0715 from $1.0697. The yen has been trading at 155 yen-levels recently, its lowest point in 34 years. This situation benefits Japanese exporters but simultaneously drives up the cost of imports, leading to speculation that Japan may intervene to bolster the yen.
In the United States, the S&P 500 index remained essentially flat, edging up by less than 0.1% to 5,071.63. The Dow Jones Industrial Average slipped marginally by 0.1% to 38,460.92, while the Nasdaq composite gained 0.1% to reach 15,712.75. Tesla’s stock surged by 12.1% after the company announced plans to accelerate production of more affordable vehicles, a move that investors hope will reignite growth. This announcement helped mitigate concerns over Tesla’s reported 55% decline in profit. Tesla is the first of the ‘Magnificent Seven’ group to release its financial results for the start of 2024.
The focus on this small group of stocks stems from their significant contribution to the U.S.’s market gains in the previous year. Their continued strong performance is crucial to justifying their high valuations. Meta Platforms also disclosed its latest results following the close of trading on Wednesday, with Alphabet and Microsoft scheduled to follow suit a day later. Market expectations are that profit growth will extend beyond the ‘Magnificent Seven’ to a wider range of companies, largely driven by the resilience of the U.S. economy. However, to drive stock prices higher, these companies will likely need to deliver even more robust profit growth, as interest rates are unlikely to provide significant support.
Despite posting results that exceeded analysts’ expectations, Boeing’s stock price declined by 2.9%. The company, which has faced criticism regarding the safety of its aircraft, stated it is implementing measures to enhance manufacturing quality, albeit this has slowed down production. On the other hand, Hasbro’s stock soared by 11.9% after the toy and game company surpassed analysts’ expectations for profit and revenue in the latest quarter. Texas Instruments and Boston Scientific also contributed to the positive sentiment in the S&P 500 index, rising by 5.6% and 5.7%, respectively, after exceeding forecasts for profit and revenue.
Japanese stocks are expected to soar in the coming months, with the Nikkei 225 projected to reach new record highs. According to analysts at UBS, the Nikkei is poised to close the year at 45,000 points, while the TOPIX index is set to hit 3,120 points. Export-oriented businesses are expected to lead the market rally, and the yen is predicted to continue its downward trend.
The Bank of Japan (BOJ) is likely to maintain its benchmark interest rate at 0.1% during its upcoming meeting, despite an improved outlook for Japanese wages and a recent decline in the yen. This follows the BOJ’s shift in policy in March, when it raised rates from negative territory for the first time since 2007. However, the central bank remains committed to keeping monetary conditions accommodative in the near term to support economic growth in Japan.
Nevertheless, factors that contributed to the March rate hike remain present, such as expectations of an uptick in Japanese wage growth and inflation. BOJ Governor Kazuo Ueda has hinted at the possibility of further rate hikes this year if wage growth and inflation continue to rise. However, he has also stressed the need for a loose policy in the short term due to the fragility of the Japanese economy.
Recent data indicating resilience in Japanese business activity and a pickup in inflation could prompt the BOJ to raise its inflation outlook for the year. Additionally, the recent weakness in the yen, which hit 34-year highs against the US dollar, may also lead to hawkish rhetoric from the BOJ in an attempt to stem the currency’s slide.
A failure by the BOJ to address the yen’s weakness could expose it to further downside pressure, potentially driving the USDJPY pair beyond 155. Conversely, any hawkish signals from the central bank would likely boost the yen and drag the USDJPY pair away from its highs. However, analysts believe that the recovery in the yen may be limited due to the persistence of higher US interest rates, which have been a major source of pressure on the currency.
The Bank of Japan will release its policy statement and Governor Kazuo Ueda will speak on Friday. The timing of the release is uncertain, but it is expected to be between 0230 and 0330 GMT (22030 to 2330 US Eastern time on Thursday). Governor Ueda will speak shortly after, at 0630 GMT (0230 US Eastern time). The market is closely watching the statement and speech for any indication of a change in the BoJ’s ultra-loose monetary policy. In September 2022, the BoJ intervened to prop up the yen after former Governor Haruhiko Kuroda’s comments stressed the bank’s resolve to maintain the policy. Governor Ueda is likely to be cautious in his remarks to avoid causing market volatility. The BoJ is also expected to leave interest rates unchanged and maintain its guidance to keep buying government bonds at a pace of around 6 trillion yen per month.
The yen has weakened below the 155-per-dollar mark as the Bank of Japan (BOJ) embarks on its two-day rate-setting meeting. The currency has been under pressure, with the US dollar breaking above the key psychological threshold for the first time since 1990. Speculation has been rife that Japanese authorities may intervene to support the yen, but no such action has been taken yet. The BOJ is expected to maintain its ultra-loose monetary policy stance, making significant appreciation of the yen unlikely, despite its historically low levels.
The Japanese yen remained weak against the US dollar on Thursday, hovering around 155 yen per dollar as the Bank of Japan (BOJ) commenced its two-day rate-setting meeting. Market participants anxiously await any potential intervention from Tokyo’s policymakers. Despite speculation of intervention to support the yen, the dollar surpassed the psychologically significant 155 yen level, reaching its highest point since 1990. The BOJ’s policy deliberations are expected to maintain short-term interest rates unchanged, prompting expectations of continued gradual policy tightening and low terminal rates. This outlook makes it challenging for the yen to appreciate significantly, despite its historically low levels. However, BOJ Governor Kazuo Ueda has indicated a willingness to raise rates if inflation continues to accelerate towards the 2% target. Broader currency markets witnessed the dollar regaining ground after earlier losses, buoyed by upbeat business activity data from the euro zone and the UK. The euro and sterling rose but later retreated slightly, while the dollar remained firm against other major currencies.
The upcoming advance reading of US Q1 GDP growth holds significance for the Federal Reserve’s decision-making on interest rates and for the Bank of Japan’s potential intervention in the USD/JPY market. Stronger-than-expected growth may delay rate cuts, while weaker growth could suggest the need for earlier easing. The market consensus estimate for annualized GDP growth is 2.5%, with expectations ranging from 1.0% to 3.1%. Goldman Sachs forecasts growth at 3.1%. Data that falls outside of these expectations can have a significant impact on markets.
Asian markets are facing uncertainty due to the depreciation of currencies against the U.S. dollar. The Bank of Japan’s two-day policy meeting, South Korea’s GDP data, Malaysian inflation figures, and trade figures from Vietnam and Hong Kong will be key market movers. Concerns about the weakening yen could prompt intervention by the Japanese authorities. Indonesia’s recent rate hike has also raised eyebrows. Meanwhile, geopolitical tensions between the United States and China persist, with the U.S. Senate voting to potentially ban TikTok.
Bank of America (BoA) has issued a warning that the USD/JPY currency pair could rapidly climb to 160, citing the Bank of Japan’s (BoJ) limited ability to curb the yen’s rapid descent through communication alone. Despite the BoJ’s previous acknowledgment of the potential impact of a weakened yen on monetary policy and inflation, BoA believes that such statements are unlikely to provide sufficient support for the Japanese currency.
