Home Forex JPY rises as negative rate cycle looks due to end

JPY rises as negative rate cycle looks due to end

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(Partial Video Transcript)

Japan negative rates cycle may be ending

Hello, I’m Angeline Ong, and welcome to your Look Ahead to Wednesday, 24 January 2024.

Japan is a big early event risk here with the trade balance numbers. Why this is an interesting data point is because we just had a band of Japan maintaining its ultra easy monetary settings, but signaled its growing belief that conditions for phasing out its huge stimulus are now falling into place. This suggested that an end to negative interest rates was nearing.

Bringing up the Nikkei for you first, because the Nikkei has had a really strong run since the October period, like many of the other indices, but the Nikkei itself, if I can draw a longer term view, is up at multi-decade highs.

And let me see if I can give this a bump to the monthly view to show you that picture. It’s widening out there, perhaps maybe even in terms of years, if I may. And as you can see, it had quite a run up, and we’re now near highs not seen since around the 1990s.

Japanese yen starts rising

I also want to show you the yen, because the yen versus the dollar, also interesting there. Let’s get you a daily chart, because the yen, and this is an inverse chart, the yen has been rising as markets start to price in this exit from negative rates in around March, April period.

The economic news is the big sort of driving force on Wednesday, not least because we have flash purchasing managers’ index (PMI) from the euro zone, the UK and the US as well. These are for manufacturing and all-important services sector as well, that’s been bolstering the economy as manufacturing is still slow at getting started again.

BoC interest rate decision due

From Canada, we’ve got the Bank of Canada interest rate decision. No change expected there, because like many major countries, that stubborn and sticky inflation seems to be creeping back in. So really, what they say will matter more than what they actually do.

From the US, look out for the EIA crude inventories, oil are clipping back below $80 a barrel after setting above the threshold on Monday for the first time since 26 December 2023. Just showing you US crude there, if I may. And we are seeing this easing, and US crude at $74.12 there.

Traders, though, are keeping a close eye, because there’s so many things that are happening in the oil market at the moment. Geopolitical tensions, well, that could change at any point. And also supply outages in the US and returning production in Libya also give this financial instrument a bit more volatility.

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