Thursday, September 29, 2022
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Marketmind: Bank of Japan intervention and interest rate hikes, not much to say

The future of the US and global markets from Dhara Ranasinghe.

How many 24 hours the financial markets have gone through. Let’s start with Japan – Authorities a few hours after confirming their ultra-easy monetary policy stance First intervention to buy yen since 1998 to support battered currency.

Ironically for some, Japan’s ultra-low interest rates stand in stark contrast to sharply rising borrowing costs in the United States. Remember, the Fed just raised rates by 75 bps again, signaling that it will do whatever it takes to curb troublingly high inflation.

So the context suggests that not only USDJPY will move higher, but currencies such as EUR and GBP will also move higher.

However, the market is right to pay attention to the warning that the Japanese authorities have sent a strong signal that USD/JPY is not a one-way bet. The yen was up about 1 percent against the dollar before morning trade in New York.

After the Fed hiked rates on Wednesday, others followed suit. Norges Bank 75 bps, SNB 75 bps – eight years after Swiss rates were positive for the first time.

The importance of Switzerland’s move should not disappear from the market as it draws a line in the era of negative interest rates in Europe.

That leaves Japan this unusually dovish as the only major central bank with negative rates, so it wouldn’t be surprising if the yen pulls back from here.

Meanwhile, U.S. stock futures trading suggested that Wall Street may be calming after Wednesday’s Fed sell-off.

An aggressive Fed may cause pain globally through a stronger dollar, but it will also cause increasing jitters at home.

Chart: Japan intervenes to prop up battered yen https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoaabdvr/Japan2209 .png

Key developments that should give the market more direction on Monday:

Bank of England rate decision for

GMT

South Africa, Egypt, Philippines, Taiwan, Turkey central bank meeting

US weekly jobless claims

Canadian New Home Price Index

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