Despite Bank of Japan (BoJ) abandoning negative interest rates for the first time since February 2016 at its March monetary policy meeting, the Japanese yen continued to slump to fresh 1990 lows against the U.S. dollar ahead of today’s April monetary policy meeting.
BoJ officials left rates unchanged rates near zero Friday, adding that its inflation rate target would remain around 2% for the next three years.
It now takes over 156 yen to control one U.S. dollar, a level some foreign exchange traders believe will eventually provoke intervention in the FX market from Japanese authorities.
The yen’s weakness is likely due to a combination of factors. First, the BoJ appears in an accommodative stance and therefore in no immediate hurry to raise rates further, while the Federal Reserve is continuing to keep monetary policy tight to bring U.S. inflation back to the Fed’s 2% target.
Since the March central bank meeting, the yen has fallen over 4% against the dollar, despite BoJ officials raising its inflation estimate for 2024 to 2.8% from 2.4% in January. Normally, elevated inflation would cause central banks to try to tighten monetary policy, but BoJ Governor Ueda downplayed the role of a weak yen on inflation expectations.
Analysts indicate the BoJ’s current level of restraint is likely due to how generally orderly the yen’s recent weakness has been—more of a slow and steady-drip decline.
However, should we start to see larger and move volatile movements in the yen’s value, Japan’s financial authorities could start buying yen in the FX market or initiate future rate hikes to lower the interest rate differential between Japan and other G10 nations.
This morning, U.S. stock index futures moved higher in the early hours with the S&P 500® (+0.73%), the Nasdaq-100® (+1.01%), the Russell 2000® (+0.07%), and Dow Jones Industrial Average® (+0.19%) all in the green.
In Asia, major indexes closed higher, with the Hang Seng (+2.12%), the Shanghai (+1.17%), and the Nikkei (+0.81%) in the green.
European trading saw the DAX (+0.76%), the CAC (+0.37%), and the FTSE (+0.43%) markets move higher by midday.
Futures on the move
Copper futures (/HGN24) closed higher on Thursday (+1.16%), with the lead-month July contract near one-year highs. Australian mining giant BHP Group made an all-share buyout proposal for Anglo American, which if accepted, would make BHP Group the largest global producer of copper.
Cocoa futures (/CCN24) closed lower Thursday (–1.93%) after giving up triple-digit gains earlier in the session. Higher cocoa exports out of Nigeria, the world’s fifth-largest cocoa producer, drew selling interest later in the trading day.
10-year Treasury futures (/ZNM24) declined on Thursday (–0.35%) as 10-year yields moved back above 4.7% for the first time since November. Concerns that U.S. inflation remains elevated now has traders pushing back the timing of the 2024’s first Federal Reserve Rate cut to December. The U.S. labor market remains resilient, as jobless claims fell to a two-month low of 207,000 last week.
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