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There are growing fears that Japan’s central bank is preparing to intervene in the currency market after the exchange rate breached 150 yen against the dollar early Monday morning. An intervention would have consequences far beyond Japan’s borders.
The Nikkei index has fallen after reaching its highest level since 1990 at the beginning of the summer. The decline continued by almost one percent in the first hour of trading on Monday morning, before stabilizing somewhat.
Last week the Nikkei index fell by three percent. This year it is up 21 percent.
Record high exports
China, Asia’s largest economy, presented slightly better-than-expected quarterly statistics last week. It will take several weeks before Japan is ready with the growth statistics. According to the consensus, a flat development is expected in the third quarter. In the second quarter there was growth of 1.2 percent.
The earnings season in Japan has still not started, but signals from the largest companies indicate that they will report solid quarterly figures. The export volume increased by 4.6 percent in September compared to August.
The article continues below the advertisementIt is a vulnerable trend. Export volumes fell in August, after a record was set in July.
– It is at least better than the 2.5 percent decline in global export volume until July this year, says head of the Asia department at Capital Economics, Marcel Thieliant, in an analysis.
The analysis and consultancy firm believes that Japanese export companies have failed to capture market shares. Export volumes have remained stable in recent years. However, the weak yen exchange rate has had a clear impact on Japanese trade.
– About 60 percent of exports are invoiced in foreign currency. The immediate effect of exchange rate changes is through changes in revenues and costs in yen, rather than through export demand. In fact, export values reached record highs last month, Thieliant points out.
– Greed inflation
A weak Japanese currency means higher import prices. Japanese companies have managed to get customers to pay the bill. According to calculations by Capital Economics, profit margins are record high.
– It appears to strengthen the claim that Japanese companies are involved in greed inflation, the analytics and consulting firm wrote in a report earlier this fall.
This year the unions succeeded in negotiating the highest wage growth in almost thirty years. They have announced that they expect higher wage growth in 2024 than this year.
The article continues below the advertisement– Nervous tension
The Japanese currency has weakened in recent months. The same thing happened last fall. The central bank responded by intervening in the foreign exchange market, buying the yen for the equivalent of NOK 750 billion – the highest level since 1998. The yen exchange rate rose from 150 to 128 against the U.S. dollar.
Early Monday morning, one dollar briefly traded at 150 yen.
– It broke the 150 limit during a period of low liquidity and less activity. This is probably due to speculation. There will still be nervous tension, currency strategist Yukio Ishizuki of Daiwa Securities in Tokyo told Bloomberg.
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It is assumed that the central bank is also about to adjust its interest rate policy in the short term. Japan has negative interest rates and since 2016 the Bank of Japan has controlled the yield curve by keeping the yield on ten-year government bonds within a certain level. This was upgraded this summer.
The changes will affect Japan’s holdings of US and European government bonds and the US dollar. Japanese investors are the largest foreign owners of U.S. government bonds. At the end of August, the assets amounted to more than 1,100 billion dollars.
– A change in Bank of Japan policy could lead to a decline in capital flows from Japan as local interest rates become more attractive than before, the head of financial market strategy at Westpac Banking told the news agency.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases via links that lead directly to our pages. Copying or other use of all or part of the contents may only be made with written permission or as permitted by law. For further conditions see here.
A weak currency results in record high margins and the highest wage growth since the 1990s
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