Yen crosses continued the downward spiral to record lows as differentials in returns between high-yielding currencies and the low-yielding yen spurred on the popularity of the carry trade. With no end to the widening yield differentials in sight, the yen continues to reach multi-year lows against most majors as the chief financing currency for carry trades.
[B]HEADLINES:
[/B]- [B]Merchandise Trade Balance Widens But Prints Below Expectations[/B]
Although the Japanese trade surplus grew for the seventh consecutive month, with a 9.3 percent increase over last year, the May figure of 389.5 billion yen fell short of the analyst forecast of 462.7 billion yen.
http://www.businessweek.com/ap/financialnews/D8PT1GCO0.htm
- [B]Japanese Export Growth Rate Nearly Doubled to 15.1%
[/B]Monthly exports grew 15.1 percent compared to the prior year, an improvement over the 8.2 percent growth rate recorded in April. Although the volume of shipments to the US dropped by 13.2 percent in May, export volume remained robust due to demand from China and the European Union.
Bloomberg - Are you a robot? - [B]Role of the Yen in Carry Trades Comes Under Fire[/B]
Continuing yield disparities between the Japanese yen and high-yielding currencies are leading to growing debate about the need for Bank of Japan to correct the carry trade bubble? through monetary policy instruments.
Bloomberg - Are you a robot?
[B]JAPAN MARKET ACTIVITY:[/B]
[B]Currency Markets - JPY:
[/B]Yen crosses continued the downward spiral to record lows as differentials in returns between high-yielding currencies and the low-yielding yen spurred on the popularity of the carry trade. The US dollar rose to a four-year high against the yen after the Fed Bank of Philadelphia?s Index reported a strong rebound in the region?s manufacturing sector. With the Japanese benchmark rate at 0.5 percent versus New Zealand?s 8 percent interest rate, the yen fell 0.5 percent to 94.31 per kiwi, and even plummeted to a two-decade low of 94.71. The yen cross with the Aussie declined 0.3 percent to 104.71 versus the Australian dollar and touched 104.75, the weakest level since October 1991. The Japanese currency made moderate recovery against the euro after the all-time low of 166.12 was reached on June 19, and traded Thursday at trading at 165.67 per euro.
[I]USD/JPY (Daily Chart)
Source: Bloomberg[/I]
[B]Equity Markets - Nikkei 225 Index:[/B]
The Nikkei 225 Stock Average extended its gains for a sixth day and rallied past a prior May 2000 record to close up 28.62 points at 18,240.30. The gains were led by semiconductor-related companies after corporate profit expectations were boosted by a 17 percent hike in the price of the dynamic random access memory chip. Advances were made by wholesale, steel, nonferrous metal, machinery and brokerage sectors, while mining, paper and pulp, and real estate stocks lost ground.
[I]Nikkei 225 Index (Daily Chart )
Source: Bloomberg[/I]
[B]Fixed-Income Markets - Japanese 10-year Government Bond Futures:
[/B]The yield on the benchmark 10-year bond extended its two-day rally, and rose 3.5 basis points to 1.925 percent, marking the third consecutive day of increase after a week-long slide that ended Tuesday. Yields on 20-year bonds surged 4 basis points to 2.325 percent as uncertainty about interest rates diminished demand for 20-year bonds at a government debt auction on Thursday. Ten-year futures for delivery in September delivery dropped 0.21 to 131.49 on the Tokyo Stock Exchange. As Japanese bond rates have climbed upwards in tandem with yields globally, speculators expect yields to edge towards the May 2006 high of 2 percent.
[I]Japanese Government Bond Futures (Daily Chart)
Source: Bloomberg[/I]