Morning Bid: Yen rattled by Japan PM’s ‘unseemly’ rate comments

10/02/2024

2 minutes read

2024.10.02 18:20

By Jamie McGeever

(Reuters) – A look at the day ahead in Asian markets.

Japanese markets, particularly the foreign exchanges, continue to digest the rather blunt comments on monetary policy from new prime minister Shigeru Ishiba after he met with Bank of Japan governor Kazuo Ueda on Wednesday.

“I do not believe that we are in an environment that would require us to raise interest rates further,” Ishiba said, sparking a huge wave of yen selling.

The yen shed almost 2% against the dollar on Wednesday, its biggest fall since February last year. Excluding the pandemic-related volatility of March 2020, it was one of the steepest declines in over a decade.

Meetings between Japan’s prime minister and central bank governor are not unusual, but this one came only days after Ishiba took office. His comments were unusually direct too – “somewhat unseemly,” according to Washington-based economist Phil Suttle.

Analysts at JP Morgan reckon the Ishiba administration will adopt a “market-friendly” policy stance until next summer when the upper house election is scheduled, which should soothe market concerns about growth.

The yen’s plunge reflects how extreme market positioning has become. U.S. futures market data show hedge funds are holding their biggest ‘long’ yen position since 2016 and one of their largest ever.

Asahi Noguchi, a dovish BOJ board member who dissented against the central bank’s rate hike in July, on Thursday delivers a speech and holds a media conference, where he is likely to be asked about Ishiba’s comments.

Elsewhere in Asia, Thailand’s finance minister Pichai Chunhavajira and central bank chief Sethaput Suthiwartnarueput speak at a central bank event on Thursday.

Asia’s economic calendar sees the release of purchasing managers index data from Australia and Singapore, and the latest international trade figures from Australia.

The dollar’s rally against the yen and U.S. economic data on Wednesday helped lift the greenback to a three-week high against a basket of currencies and register its third daily rise of around 0.5%.

Escalating tensions between Iran and Israel continue to sustain safe-haven demand for the dollar and the rebound in oil prices. rose above $76 a barrel for the first time in a month, but only ended the day up around 1%.

Investors will also be assessing news that France, Greece, Italy and Poland will vote on Friday in favor of hefty tariffs of up to 45% on imports of electric vehicles made in China. That could push through the European Union’s highest profile trade measures, risking potential retaliation from Beijing.

How will Germany vote? Finance Minister Christian Lindner said the country must oppose the EU proposal, adding: “A trade war with China would do us more harm than good for a key European industry and a crucial sector in Germany.”

Here are key developments that could provide more direction to Asian markets on Thursday:

– Australia trade (August)