The US currency dropped against the Japanese yen as of Monday, pulled down by the declining Tokyo stocks and data that shows Japan registered a much bigger-than-estimated trade surplus for April. However, this is hardly an optimistic sign, as the news pushed the yen even higher against the dollar and creating a tougher environment for Japanese corporations.
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With economic growth across emerging markets showing fresh signs of flagging – ratings agency Moody’s expects growth in G20 emerging markets to ease to 4.2 percent in 2016 compared to 4.4 percent past year – investors are growing more bearish on the outlook for stocks.
Although turnover edged up to 1.783 trillion yen, recovering from the previous day’s 1.67 trillion yen when it hit the lowest this year, it remained thin. Instead, finance ministers stressed the importance of varying action for different countries.
Hawkish comments from San Francisco Federal Reserve President John Williams and St. Louis Fed President James Bullard on Monday initially drove the dollar’s gains against the euro by reinforcing expectations for a potential US interest rate increase in June or July.
The probability for a June rate hike rose from around 4 per cent at the start of the week to 30 per cent on Friday, according to CME Group’s FedWatch site.
Nevertheless, Japan’s balance sheet in April was still in positive territory, with a trade surplus reported at 823.5 bln yen ($7.50 bln), nearly twice as much as previous expectations.
The JPX-Nikkei Index 400 declined 1.0 percent to 11,974.59.
Senior Investment Strategist Norihiro Fujito says, the market was 100% sure the sales tax hike had been deferred.
Purchases of new homes in the US surged in April to the highest level since the start of 2008.
The yen weakened sharply, which boosted Japanese exporters’ profits and sparked a huge stock market rally. Futures markets are predicting two rate increases this year as opposed to just one as recently as last week.
Federal Reserve chairwoman Janet Yellen will appear at a panel event hosted by Harvard University on Friday.
In other currencies, the euro was little changed against the dollar.
The Federal Reserve is moving closer to “slow normalization” of interest rates, St. Louis Fed President James Bullard said in Beijing Monday.
In other currency trading, the euro EURUSD, +0.0445% was at $1.1231 from $1.1223. “The trade numbers came out against a political backdrop that does not favor Japan intervening to weaken the yen, thus making it relatively easy for participants to buy back the yen”.
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In early deals, U.S. benchmark West Texas Intermediate for July delivery was down 14 cents at $47.94 a barrel while Brent crude for July slipped 19 cents to $48.16.
