Japanese Intervention Risk Returns Even as Expected Size of Next Fed Rate Cut Shrinks
October 7, 2024
Ever since the international monetary system switched from fixed to market-determined flexible dollar exchange rates in March 1973, government officials in Japan have been particularly sensitive to excessive currency market volatility. The asymmetry since 2022 between loose Japanese monetary policy and tight stances elsewhere has presented a particularly difficult challenge especially with Japan transitioning out of its extended period of negative interest rates. With the yen hovering around a 38-year low against the dollar, the Ministry of Finance did about JPY 4.8 trillion of intervention sales of foreign exchange sales against yen, and the currency quickly rebounded from 160 per dollar, reaching as high as 140.1 per dollar by mid-September. The yen had slipped last week and got as low as 149.1 per dollar overnight, prompting Vice Finance Minister Atsushi Mimura to warn that “we will monitor currency market moves including speculative trading with a sense of urgency.”
A weakening yen would tend to raise import prices and thereby undermine the effort to normalize interest rates in Japan. Currency market instability could also jeopardize the economy’s moderate recovery. Japan’s index of leading economic indicators sank 2.5 points in August to a 26-month low and was accompanied by an even steeper drop in the index of coincident economic indicators to a 6-month low.
Another major development in world financial markets this Monday has been an extension of upward pressure on oil prices as investors watch geopolitical developments in the Middle East and react to speculation that Israel may be planning attacks to impair Iran’s productive facilities. The price of West Texas Intermediate oil is 2.5% greater than at Friday’s close.
All this has been happening even as analysts have been scaling back the expected size of the likely November cut federal funds rate target from a half percentage point as done in September to no more than 25 basis points. A more gradual trajectory seems warranted given the surprisingly robust U.S. September labor market data.
Compared to Friday, the dollar has fallen 0.4% against the Swiss franc, 0.3% relative to the Japanese yen and 0.1% versus the euro but also risen 0.4% against the New Zealand dollar, 0.3% relative to the Mexican peso, 0.2% vis-a-vis sterling and 0.1% against the Canadian dollar.
Ten-year sovereign debt yields are three basis points higher in the United States but even more sharply elsewhere: six bps in the U.K., 5 bps in Japan, four bps in Germany, Italy and Spain, and three basis points in France.
Today was the last day of China’s Golden Week holiday. Stock markets elsewhere closed up today by 1.8% in Japan and Taiwan, 1.6% in Hong Kong and South Korea, and 0.7% in Australia. In U.S. pre-open trading, U.S. stock futures are down around a half percent. Most major European stock markets show gains ranging from 0.3% in the U.K. and Italy to 0.6% in France.
The German Dax, has been an exception edging 0.2% lower. Germany received yet another piece of negative economic news. Industrial orders, which had risen in both June and July, plunged much more sharply than expected in August (-5.8%). Domestic demand sank 10.9%, and overall orders were 3.9% below their year-earlier level.
Bitcoin‘s price is unchanged, and gold has firmed 0.3%.
Among price data released today,
- Estonian consumer prices in September fell 0.3%, their largest monthly drop in 11 months. This cut year-on-year inflation to a 3-month low versus the cyclical high of 24.8% recorded in September 2022.
- Tunisian CPI inflation ticked 0.2 percentage points higher to 6.9% last month, a 2-month high but still below 10.4% in February 2023.
- Vietnamese CPI inflation dropped back almost a percentage point to a 14-month low in September of 2.6%.
- CPI inflation in Thailand, which crested at 7.9% in August 2022, stayed below 1.0% for the 16th time in 17 months, printing a 0.6%.
- Austrian September wholesale prices fell 0.7% on month and 3.1% on year.
The British Halifax house price index rose 0.3% on month and 4.7% on year in September, which was the largest 12-month advance in 22 months.
The Sentix gauge of investor sentiment toward Euroland was slightly less pessimistic in October (-13.8) than in September (-14.5).
Retail sales volume in the euro area rose 0.2% in August, the first increase since March and yielding an advance of 0.8% compared to a year earlier.
The Czech trade balance recorded a surplus of CZK 166 billion in January-August, up from CZK 65 billion a year earlier and and a deficit of CZK 138 billion in the first eight months of 2022.
Uganda’s central bank has announced a second 25-basis point interest rate cut. The new 9.75% level is its lowest since March. The rate had been at 10.25% from April until August earlier this year.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland retail sales, German industrial orders, Japanese Vice Finance Minister Mimura
ShareThis
