Friday 03.30 BST. Asian markets were on track to finish an already rough week on a sour note, as sentiment took a knock from a stronger yen and Wall Street’s biggest drop in almost two months.
During US trading on Thursday, the Japanese currency firmed to Y107.67 per dollar — its strongest since October 2014 — a few days before the Bank of Japan surprised markets by boosting its quantitative easing programme.
The yen was 0.5 per cent softer on Friday at Y108.73, potentially its first decline in seven sessions. This week the currency has rallied 2.6 per cent, its biggest weekly advance since February 12.
That appreciation has hurt Japanese stocks, with the Topix benchmark down 0.2 per cent and the narrower Nikkei 225 shedding half a percentage point.
The Nikkei on Thursday ended a seven-day losing streak, its equal-longest in the era of Abenomics. But it is eyeing a 3 per cent decline over the week, while the Topix is off 2.4 per cent.
Last week the benchmarks fell more than 4 per cent after the closely watched Tankan survey showed business sentiment in Japan during the March quarter was at its gloomiest since the first half of 2013.
“The outlook for the global economy has become increasingly clouded amid steep declines in resource prices and slowing in emerging economies and the external environment has seen significant changes since January in such areas as yen appreciation and the Bank of Japan’s adoption of a negative interest rate policy. Prospects for earnings at export-oriented companies from the first quarter of 2016 onward have become distinctly clouded owing to the strengthening of the yen,” said analysts at Nomura.
Shinzo Abe, Japan’s prime minister, reiterated this week that the country would refrain from arbitrarily intervening in the currency market and would seek to avoid competitively devaluing the yen.
The yen has continued to climb, even in the face of the Bank of Japan loosening monetary policy in January via the adoption of negative interest rates.
“In less than four months, markets have gone from one-sided bearish [renminbi] bets to one-sided bullish yen bets. Like China, Japan may have to consider measures beyond intervention to discourage speculation,” analysts at DBS said.
Investors took note of China’s foreign exchange reserves data, which were released late in the Asian session on Thursday, showing that its pile rose by $ 10bn in March to $ 3.212tn, the first increase since October and in contrast with market expectations for another monthly decline.
Analysts at Bank of America Merrill Lynch noted that weakness in the US dollar last month created a positive valuation effect of $ 35bn, and estimated that an “intervention effect” was negative $ 24bn.
“This could imply China is still defending its currency at the margin, although the size of the intervention has trended down from $ 126bn in December 2015,” they said.
BoAML’s analysts also said: “With the dollar/yen breaking decisively below 109, forex tensions are likely to escalate again, in our opinion.”
Data this morning showed Japan’s current account surplus jumped to an 11-month high of Y2.434tn in February. It was the 20th consecutive surplus, as income from direct and portfolio investments nearly doubled in the month.
Australia’s S&P/ASX 200 was down 0.5 per cent, while Hong Kong’s Hang Seng was off 0.8 per cent. On the Chinese mainland, the Shanghai Composite was down half a percentage point, while the technology-focused Shenzhen Composite shed 0.6 per cent.
In the US, the S&P 500 closed 1.2 per cent lower on Thursday, the third session in a row that the benchmark has moved by more than 1 per cent in either direction. It was the second fall over that period and the biggest fall since February 23.
Oil prices bounced back from declines overnight of more than 1 per cent. Brent crude, the international benchmark, was up 1.2 per cent at $ 39.91 a barrel, while West Texas Intermediate, the US marker, gained $ 37.93.
The overall mood towards oil this week has been optimistic, as Kuwait’s Opec governor said there were positive indications major producers would, at a meeting scheduled for April 17, reach an agreement to freeze output, even without the participation of Iran. Data also showed a surprise weekly decline in US stockpiles, the first in two months.
Gold was down 0.3 per cent on Friday at $ 1,236.77 but looks set to eke out a gain of 1.2 per cent for the week. The minutes from the Federal Reserve’s March meeting, released on Wednesday, showed many members of the policy-setting committee were concerned global developments posed “appreciable” risks to the US economy.
However, in a moderated informal discussion on Thursday evening between past and current chairs of the Federal Reserve, Janet Yellen, the incumbent, said the central bank was still on track for further interest rate rises this year.
The dollar index, a measure of the US currency against a basket of global peers, was up 0.1 per cent at 94.608. The euro was down as much at $ 1.1367 following a shaky session on Thursday, with minutes from the European Central Bank’s March meeting showing the divisions between policymakers over their newly-boosted stimulus package.
The Australian dollar was the best-performing Asian currency today, up 0.3 per cent as it recovered from a sharp fall overnight.
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