News about Japan

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Yen and Japanese bonds continue to retreat as verbal intervention lacking

The yen and Japanese government bonds continued to retreat Thursday as confidence failed to return, and negative sentiment snowballed, even as stocks rebounded following a decisive overnight rally in the United States.
A massive stimulus package set to be announced Friday by the new administration in Japan remains a worry, with huge numbers being bandied about and the possibility of new debt being issued to fund the stimulus becoming a real possibility. A muted official response to market weakness may have made matters worse.

In trading Thursday, the yen continued to free-fall toward ¥158 to the dollar while the 10-year yield reached a 17-year high. Bond prices move inversely to yields.

“There was no specific discussion on foreign exchange,” Finance Minister Satsuki Katayama told reporters Wednesday evening after a meeting with Bank of Japan Gov. Kazuo Ueda and Minoru Kiuchi, minister in charge of economic and fiscal policy.

Asked about the currency situation on Thursday morning, Chief Cabinet Secretary Minoru Kihara repeated almost verbatim remarks by Katayama two days earlier, that the government is “concerned” about “one-sided and rapid” movements and will monitor related movements with a “high sense of vigilance.”

“It is important for exchange rates to move in a stable manner that reflects economic fundamentals,” he said.

The distinct lack of verbal intervention might have been taken as a sell-sign by some investors, one economist noted, and may have contributed to the weak sentiment.

“The markets may have misunderstood the purpose of the three-way meeting,” wrote Takahide Kiuchi, executive economist at Nomura Research Institute, in a report on Thursday.

“Because it took place at a time when the yen was weakening, investors likely assumed the aim was to warn against further depreciation. But since the participants did not present a strong stance against the yen’s decline, the lack of such signals led to disappointment, pushing the dollar higher and the yen even lower.”

The market is somewhat hopeful that the Bank of Japan will tighten rates sooner rather than later, instead of holding off on the increase out of deference to dovish Prime Minister Sanae Takaichi. A Reuters poll published Thursday showed that 53% of economists surveyed expect the central bank to raise the key rate to 0.75 at its December meeting.

“Given that real interest rates are currently at extremely low levels, I believe that moving toward normalization — bringing real rates back to an equilibrium level — is necessary to avoid creating unintended distortions in the future,” Junko Koeda, a BOJ board member, said in a speech Thursday to local business leaders in Niigata Prefecture.

Her remarks came after Hajime Takata and Naoki Tamura — two of her colleagues on the nine-member board — proposed an immediate rate increase at two consecutive meetings.

Some economists have questioned how much a rate hike would actually do to prop up the currency, which showed little sign of strengthening despite the narrowing Japan-U.S. rate gap over the past year. Some of them have argued that an intervention is becoming more of a possibility, though the government’s intention remains hard to read.

At an Upper House finance committee meeting on Thursday, as lawmakers pressed the administration over its “responsible and proactive” fiscal stance, Katayama acknowledged the competing pressures at play.

“It is extremely difficult to balance all these factors — prices, interest rates and the weak yen,” she said.

The Nikkei 225 stock index soared in the morning, briefly reclaiming the 50,000 mark and gaining more than 2,000 points from the previous day. It closed the day up 2.65% at 49,823.94.

Artificial intelligence-related stocks helped fuel Thursday’s rally, after Santa Clara, California’s chipmaker Nvidia reported exceptional earnings results overnight. The AI euphoria outweighed the growing pessimism about a December rate cut by the U.S. Federal Reserve, as well as the heightening tension between Japan and China.

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