Market Analytics and Considerations
Key notes
Tuesday saw a small decline across most Asian currencies as concerns about a probable slowdown lingered, but the Japanese yen surged ahead of its rivals as the Bank of Japan changed its ultra-dovish stance, raising expectations for a likely turnaround.
The yen increased 2.7% at 133.14, its highest point in 4 months against the dollar. The BoJ expanded the range in which it permits yields on its baseline government bonds to vary, which caused the currency to appreciate.
The action gives some validity to previous rumors that the central bank may tighten its super stance in response to the nation’s increasing inflation. Nonetheless, it kept its inflation objective at 2%, which is less than 50% of the nation’s actual inflation rate, and kept its benchmark rates at close to zero.
Nevertheless, the yen gained from talk of a turnaround, and earlier this week, reports in the media suggested that the government intended to reevaluate the BoJ’s percentage growth prognosis.
The move on Tuesday was much more aggressive than the markets had anticipated, and it helped the yen bounce back from a 30-year low reached in October. The Japanese economy, which is suffering from excessive import costs caused by the yen’s value falling this year, may find some comfort from a stronger yen.
The action on Tuesday also makes Japanese debt seem a little more appealing.
Larger in scope Asian currencies fell even further against dollar as risk aversion remained low due to the possibility of more aggressive central bank actions and a likely recession in 2023. The yen, the euro, and the pound all got stronger, which put pressure on the dollar index and dollar index futures even as the dollar gained ground versus most Asian currencies.
Both securities experienced a 0.4percentage decline and were trading close to a 5 bottom that was reached earlier in the month.
Weeks ago, the Bank of England and the European Central Bank both gave ominous indications that interest rates would continue to rise, which helped support their respective currencies.
As a result of the closing gap between high- and low-risk debt, this is bad news for Asian currencies.
