Asian Market Update: Yen Hits Two-Year High as Regional Stocks Follow Wall Street’s Lead

Improved risk sentiment failed to deter the yen on Thursday, as its rally against the dollar deepened in the wake of stronger than expected U.S. inflation data.

Yen’s Relentless Surge Continues

The Japanese currency climbed to more than two-year highs against the dollar, extending its rally to four straight days. The USD/JPY exchange rate bottomed out at 106.30, its lowest since November 2016. At the time of writing, the pair was down 0.4% at 106.53.

A weaker U.S. dollar has been the primary catalyst behind the yen’s newfound strength. On Thursday, the dollar index (DXY) was on track for its fourth consecutive drop, undoing a two-week rally that climaxed on Feb. 9.

Earlier this month, the Japanese currency benefited from global risk aversion tied to a large-scale correction in U.S. stocks that began Feb. 2. As a regional safe-haven, the yen usually benefits from periods of volatility and heightened uncertainty.

Japan’s Finance Minister Taro Aso has been closely monitoring the yen’s movement over the years, vowing to intervene in the market where necessary to curb excess volatility. In Aso’s view, the yen’s recent strength is not compelling enough for government forces to intervene.

The Bank of Japan (BOJ) has expressed little interest in diverging from its current path of monetary policy now that the economy is finally catching up to years of record stimulus. The Japanese economy expanded much slower than expected in the fourth quarter, but still managed to cap off its eight consecutive quarterly expansion. GDP expanded 0.5% on the quarter for its longest streak of uninterrupted growth in 2018.

Tokyo will likely reappoint Haruhiko Kuroda for a rare second term as BOJ Governor, signaling the government’s continued confidence in the central bank’s direction.

Asia Pacific Markets Rise

Regional stocks chased Wall Street higher on Thursday, with Japan’s Nikkei 225 Index adding 1.2% through the midday. Meanwhile, Australia’s S&P/ASX 200 was also up 1.2%.

Asian markets were far less active than usual as China, South Korea, Taiwan and Vietnam remained closed for Chinese New Year.

Earlier in the day, U.S. stocks posted their fourth consecutive daily advance, as calm returned to Wall Street following the biggest selloff in years.

On the futures side, North American and European equity contracts were down across the board in pre-market trading, pointing to a soft start to the day on Thursday. European futures contracts were down especially hard, with Germany’s DAX 30 shedding 391.50 points. The U.K.’s FTSE 100 futures contract was also down 173 points.

Data watchers can expect a steady stream of market-moving reports in the coming hours. The European Commission’s statistical agency will report on the December trade balance at 10:00 GMT.

The New York session will feature a slew of early releases, including U.S. producer inflation, initial jobless claims and a pair of manufacturing surveys. Later in the morning, the Federal Reserve will report on industrial production for the month of January. The National Association of Home Builders (NAHB) will cap off the session with the monthly housing market index.

Featured image courtesy of Shutterstock. 

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi