The value of the Japanese yen continues to degrade to near-record lows as the trend of the yen carry trade is further cemented by speculation that Japanese interest rates will remain at the current low level through the summer.With no end to the widening yield differentials in sight, the yen continues its downward spiral as it finances higher returns elsewhere.
- [B]Business Sentiment Index Continues to Deteriorate in Q2[/B]
The BSI large all industry report indicates the prevalence of a pessimistic outlook in the manufacturing sector as business confidence continues to slide from -0.1 in Q1 to an unexpectedly weak -2.2 in Q2.
UPDATE 4-Japan sentiment down, BOJ Muto keeps Aug hike view | Reuters
- [B]BoJ to Adjust Interest Rates As Warranted by Economic Conditions[/B]
Minutes of the Bank of Japan?s May meeting revealed that board members reached a consensus on the need for a gradual? rise in interest rates to align it with the prevalent inflation and growth outlook.
- [B]Bank of Japan?s Muto Remains Non-Committal About Interest Rates[/B]
A press conference by Bank of Japan?s Deputy Governor Toshiro Muto failed to provide clear indication of the central bank?s stance in future monetary policy decisions.
[B]JAPAN MARKET ACTIVITY:[/B]
[B]Currency Markets - JPY:
[/B]The value of the Japanese yen continues to degrade to near-record lows as the trend of the yen carry trade is further cemented by speculation that Japanese interest rates will remain at the current low level through the summer. Comments by Deputy Governor Muto and minutes of a policy meeting conveyed a non-committal stance on whether the Japanese economic situation warrants an interest rate hike. The yen reached a four-year low against the US dollar, trading at 123.61 per dollar at 1:46 p.m. in New York. Minutes of a Bank of England meeting fueled speculation of a rate increase in July, causing the yen to plummet to as low as 246.61 against the cable, the lowest since September 1992. Against the kiwi, the yen fell to the weakest level in two decades, and also dropped 0.2 percent to 165.88 per euro, near Tuesday?s all-time low of 166.12.
[B]USD/JPY (Daily Chart)
[/I][B]Equity Markets - Nikkei 225 Index:
[/B]The Nikkei 225 rallied for the fifth consecutive session, closing up 48.07 points at 18,211.68, and even surpassing the seven-year high of 18,215.35. As US Treasury yields continue to decline, expectations of higher interest rates diminish, hence improving the economic outlook for the primarily export-based Japanese economy. With the yen approaching record-lows, the gains were led by exporters and shipping companies. Most notably, Mitsubishi Heavy closed at the highest level since August 28, 1997, rising 2.8 percent 803 yen.
[B]Nikkei 225 Index (Daily Chart )
[B]Fixed-Income Markets - Japanese 10 year Government Bond Futures:
[/B]Bond yields slid again on Wednesday to 1.90, down 0.78 percent, as speculation of an interest rate hike in July was curbed after the BSI large all industry report showed an unanticipated decline in business confidence through the second quarter. Yields were insulated from the full possible impact of the pessimistic business sentiment outlook as traders continue to sell debt holdings ahead of the 20-year debt auction tomorrow. After peaking to a one-year high of 1.954 on June 13, yields have followed a week-long pattern of decline that was only interrupted Tuesday by a 4 basis points rally to 1.915.
[B]Japanese Government Bond Futures (Daily Chart)