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The Japanese yen has hit a new low since 1998

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The yen continues to fall against the U.S. dollar on the background of the soft monetary policy of the Bank of Japan. For the first time since 1998, the exchange rate exceeded the mark of 139 yen per dollar. Over the last year, the yen has fallen in value by nearly 25

The dollar/yen exchange rate on the Forex market exceeded the mark of 139 yen for the first time since September 1998. The dollar rose 1.4% to 139.4 yen per dollar.

Japan’s currency has depreciated by about 20% since the beginning of this year, and the yen has depreciated against the dollar by a total of almost 25% over the past year. The main reason for this trend was the divergence between the super-soft monetary policy of the Bank of Japan and expectations of further tightening of the U.S. Federal Reserve policy in order to stop inflation growth.

Last month, the Fed raised its benchmark interest rate by 75 basis points, the sharpest increase since 1994. In all, the Fed has raised interest rates by 150 basis points since March. U.S. inflation accelerated to a new, 40-year high in June. For the year, prices rose 9.1% after an 8.6% gain in May and against a forecast of 8.8%. Rising inflation is provoking the U.S. Federal Reserve to further tighten monetary policy, leading to increased demand for the dollar.

Japan’s central bank cannot afford to raise rates as easily because of its high debt burden. High interest rates on government debt servicing are a critical component for Japan. Debt service costs account for a quarter of the country’s budget.

Japan’s interest rate has remained negative since 2016. The country’s regulator is pursuing an extremely soft policy, keeping the lending rate virtually at minus levels to stimulate the economy. At its June 17 meeting, the Bank of Japan left the main parameters of monetary policy unchanged. 

The short-term interest rate on commercial bank deposits at the Central Bank was left at minus 0.1% per annum; the target yield on Japan’s ten-year government bonds – about zero. The Bank of Japan also confirmed that it is ready for further policy easing, if necessary.

The exchange rate of the dollar may continue to grow up to 140 yen per dollar. This mark may trigger profit taking on long dollar positions, as it is considered a red line, the crossing of which increases the risk of a coordinated intervention to support the yen.

Forex

US recession and stock market. Thomas Barkin, Fed: Recession is virtually impossible

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us recession and stock market

The U.S. recession and the stock market are closely linked. The key U.S. stock market indices – Dow Jones, NASDAQ and S&P 500 – have resumed their growth, and this movement already raises a lot of questions. To remind you, the U.S. stock indices have been rising for several weeks in a row and even updated their previous local highs, recovering by 40-50% after falling in recent months. 

Thomas Barkin, one of the members of the Board of Governors of the Fed, said that inflation is declining because of the leveling of demand. He is probably referring to the core rate, which has really stopped rising. But the core continues to be at its highest level in 40 years, and we wouldn’t say at this time that inflation is slowing. 

On US recession news Barkin also said that inflation will not fall immediately, sharply or quickly, and that the Fed is unlikely to get help from supply chain fixes or other world events. He also noted that the U.S. economy is not in danger of a recession, and at this time there is only a slight slowdown in GDP growth, as a recession is not possible with 400,000 new jobs created each month (NonFarm Payrolls). 

In light of this statement and earlier statements from Powell and Yellen, Friday’s NonFarm Payrolls report becomes even more important than before. Recent reports have indeed shown the strength of the U.S. labor market, but what if Nonfarm Payrolls start to decline? What will the Fed members say then, how will the U.S. stock market move? We still believe that despite the strong upward correction, there is still a long way to go before the downtrend is over.



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Euro rate chart: the euro is not going into a trap

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usd to euro rate

No matter how much FOMC officials try to convince investors of the Fed’s commitment to aggressive tightening of monetary policy, so far the financial markets are not taking the Central Bank’s bait. How has this affected the euro rate chart? 

U.S. stock indices started rising again and hit a peak in the last two months. The reason for this is the expectation that the Fed will introduce new mechanisms to stop the fall. At the same time, there are no guarantees that the Fed will take drastic measures. Owing to the fact that the situation is ambiguous and nobody makes accurate forecasts, the EURUSD exchange rate constantly fluctuates in one direction. The pair cannot go beyond the consolidation range at 1.01-1.03.

USD to euro rate: what’s going on in the currency market?

Investors are hoping the report on the U.S. labor market in July will give some clarity. No one wants to get ahead of the curve before it is published. In such a situation in the past, one or several big players could provoke a false-break. Statistics were used to implement that idea. Now nobody wants to take risks. The Eurozone data does not lead to serious fluctuations in EURUSD.

In particular, the fact that German manufacturing orders have been declining for the fifth month in a row might have dealt a blow to the euro. However, the bulls in the main currency pair found it positive: in fact the index fell by 0.4% m/m against a forecast of -0.9%.

Meanwhile, consumer expectations for future inflation remain at elevated levels in the eurozone. Respondents expect gross domestic product to contract by 1.3% over the year and unemployment to rise to 11.5%. This is in stark contrast to the central bank’s forecasts. It does not expect a recession and sees the unemployment rate at 7% through 2024.

FOMC officials are 100% convinced that if monetary policy is tightened, the markets will start to fall. But this is a natural phenomenon. No one has canceled the market cycle. It’s a pattern. So we should not expect domestic consumption to decline and inflation to come to a complete halt.



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European stock market news: Europe started to lag behind the rise in U.S. stock prices

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european stock market news

Current European stock market news: U.S. stock futures rose slightly Friday, helped by tech stocks as investors prepare for the monthly U.S. jobs report, which is likely to revive the recession debate.

Futures on the Nasdaq 100 rose, signaling the underlying indicator could reach a 20% gain from its June low and meet the technical definition of a bull market. The S&P 500 futures were up modestly.

European stock market analysis

European equities were flat, but they started to lag their “American counterparts” and the daily candlesticks clearly show it. The Stoxx50 index is still undecided as media firms and insurers drag it down.

Investors are returning to defensive stocks, especially tech stocks, as falling bond yields make long-term assets more attractive. 

The global stock index is poised for a third weekly gain, and is approaching a two-month peak in recovery from bear market lows, helped by solid earnings at U.S. companies. 

U.S. jobs data on Friday is the next key point for the markets. Likely hiring, according to Anne Wong, Bloomberg Economics’ chief U.S. economist, things eased in July, but the labor market remains in line with a growing, not-recessionary, economy and the Fed will continue to raise rates.

Separately, Democrats agreed to a revised version of their tax and climate bill adding a new 1% excise tax on stock buybacks.



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