Strong Yen Sales – Currency Thoughts
Strong Yen Sales
October 2, 2024
Japan’s ultra-loose monetary policy when other central banks scrambled to tame a sharp rise inflationary pressure in 2021-3 had encouraged investors to borrow essentially free money offered in Japan and invest in higher yielding assets elsewhere. Those so-called carry trades are now being reversed and consequently driving down the yen, which slumped 0.9% against the dollar overnight. Against other currencies, the dollar shows no overnight change against the euro, Canadian dollar or sterling and has dipped 0.2% against the Australian currency and 0.1% versus the kiwi.
Relative to pre-debate expectations, pundits have by and large declared the Republican VP candidate JD Vance the winner “on points.” Vance seemed more at ease in a debate format and in not answering questions and misconstruing facts without any show of shame. In the final half hour of the debate, however, momentum shifted as Walz grew more comfortable and Vance stumbled in justifying Trump’s seditious 2020 post-election behavior. There were no knock-out blows, and it remains to be seen if this event moved the needle in the key states that will decide November’s election.
The price of oil climbed around 3% overnight amid an escalation of fighting in the Middle East, as Iran attempted to bomb Israel. Bitcoin firmed 0.4%, while gold‘s price is 0.7% softer.
The reversal of carry trades sent ten-year sovereign debt yields up 7 basis points in the U.K., 6 bps in Spain and Italy, 5 bps in France and Germany, and three basis points in the United States, but depressed Japan’s JGB yield by two basis points.
The Central Bank of Iceland became the latest monetary authority to initiate a cycle of interest rate cuts from an extended highly restrictive level. The key 7-day term deposit had been held at 9.25% since a 50-basis point hike in August 2023 culminated increases totaling 125 bps in 2021, 400 bps in 2022 and 325 bps in 2023. Meanwhile, consumer price inflation in Iceland has receded from 10.2% in February 2023 to 6.0% this past August and a 33-month low of 5.4% in September. That’s still above the 2.5% medium-term target of central bank officials but low enough relative to interest rates to elicit today’s announcement of a 25-basis point term deposit rate cut to 9.0%. In taking this step, a released statement stresses that officials will continue to act with caution due to “persistent inflation, inflation expectations above target, and strong domestic demand.”
Golden Week continues in China, and India’s market was also closed today in observance of the birthday of Mahatma Gandhi. Elsewhere in Asia, equities fell 2.2% in Japan, 1.2% in South Korea and 1.0% in Indonesia but rose in Hong Kong by 6.2% today after yesterday’s holiday closure. European stock markets are lower and so are U.S. pre-open futures.
South Korea’s manufacturing purchasing managers index took dived 3.6 points to a 15-month low of 48.3, which is the first sub-50 reading since 49.8 last March. South Korean consumer price data were also released, showing a 0.4 percentage point deceleration to a 45-month low of 1.6%. That’s also down from the 260-month peak of 6.3% touched in July 2022.
In Japan, consumer confidence in September was its least pessimistic since April with a reading of 36.9. That’s still well below the 50 level that divides pessimistic from optimistic territory for this diffusion index. The Japanese monetary base, which is what a central bank explicitly controls, rose only 0.5% year-on-year in the third quarter, down from 1.2% in 2Q and 2.9% in the first quarter. Japanese ultra-loose monetary policy is far away from a point where the “ultra” modifying term can be dropped from “loose.”
Today’s main economic report from Europe was the average monthly jobless rate in the euro area, which in August matched July’s record low of 6.4% and which constitutes a near halving from the record high of 12.2% in February-June of 2013.
Producer price inflation in Romania rose marginally further to 2.67% in August from 2.62% in July, a record low of -8.0% in March and a prior peak of 51.0% in August 2022.
The U.S. 30-year fixed mortgage rate was 6.14% last week. That was down from 7.24% five months earlier and a peak of 7.9% late last December.
ADP’s early bird estimate of U.S. net private employment growth last month rose to a 3-month high of 143 thousand, some 20% more than analyst forecasts and following an upwardly revised 103k gain in August. It was noted, however, that this pickup had not been correlated with strengthening wage growth.
The National Bank of Poland’s key interest rate was left unchanged at 5.75% after this month’s scheduled review. It’s been at that level since back-to-back cuts of 75 basis points and 25 bps in September and October of 2023. CPI inflation had plunged from 18.4% in February 2023 to 2.4% thirteen months later, but it subsequently backed up to 4.3% by August and a 9-month high of 4.9% last month. That’s roughly twice the central bank’s targeted 2.5%.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: ADP estimate of U.S. private jobs growth, Central Bank of Iceland, National Bank of Poland, U.S. vice presidential debate
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