Ueda drove USD/JPY to its biggest daily loss here in 2 months:


Bank of Japan Governor Ueda gave an interview with Yomiuri last week. The media group published comments from the interview over the weekend. In a nutshell, Ueda said that he thinks its possible that the BOJ will have enough information by the end of 2023 to make an assessment if wages will continue to rise, which is a condition for trimming monetary stimulus. If the Bank is confident that prices and wages will rise in a sustainable fashion then ending its negative interest rate is one of the options available.

USD/JPY was marked lower in very early trade here in Asia on this. Very early trade is characterised by super-thin liquidity. New Zealand markets are the first to open here in the time zone. NZ markets are only small. Australian markets are next open and even then NZ and Australia combined are small markets only. Tokyo follows (Japan is 3 hours behind New Zealand), then Singapore and Hong Kong (SG and HK are 4 hours behind New Zealand). I warn of this every week and occasionally it bites. USD/JPY dropped from a closing level on Friday (Americas time) around 147.80 to levels around 146.90 at this early time before dribbling a little lower still.

USD/JPY had some retracement, back over 147.20 briefly. As interest rate markets in Tokyo opened though Japanese Government Bonds came under pressure. The 10-year yield rose to its highest since 2014. This gave a renewed bids to the yen. As I post its not far from its session lows under 146.50. You’ll know that yield differentials between the US (high) and Japan (low) have been a key driver for the rising USD/JPY, a narrowing of this, with rising Japanese yields today, is yen supportive.

As an aside, there are plenty of analysts pointing out that Ueda’s comments are very conditional and that super-easy policy will remain in place for now. While this assessment is correct I think it misses three critical important points. One, this is the first time that Ueda has floated a potential timeline for a reduction of the Bank’s ultra-easy monetary policy. Two, he made specific mention that removing negative rates would be on the table as an option. Thirdly, the yen carry trade has seen positioning move to epic proportions. Even the beginnings of an unwind will hit USD/JPY (lower) hard. The freight train is moving. Its super brave to stand in front of it.

The USD lost ground more widely with the USD/JPY move. AUD, NZD, CAD, EUR and GBP are all higher on the session.

From China today we had a record gap between the modelled estimate for the USD/CNY reference rate (7.3437) and the actual rate (7.2148) handed down by the People’s Bank of China. This aggressive move from the PBoC is indicative of its concern over the rapidly dropping RMB and signals its not prepared to let it plunge fast for now. The Bank is not going to stop the decline, but it is not going to make it easy for yuan bears.

Note in the bullets above a weekend announcement from China to allow insurance firms to buy more equities, a supportive move for markets there.

Over the weekend we had inflation data from China, see bullets above.

Asian equity markets:

  • Japan’s Nikkei 225 -0.2%

  • China’s Shanghai Composite +0.5%

  • Hong Kong’s Hang Seng -1.4%

  • South Korea’s KOSPI +0.1%

  • Australia’s S&P/ASX 200 +0.1%

usdyen wrap chart ueda 11 September 2023