Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
The yen dam was breached but did not break.
At least not yet.
The currency’s brief fall on Wednesday to a new 34-year low of around 152 to the dollar prompted an emergency meeting of Japan’s three main monetary authorities to intervene directly in the market to stem what they see as erratic and speculative moves that are inevitable.
Asian markets’ focus on Thursday will be on whether Tokyo will back up its increasingly loud and frequent warnings with action. Finance Minister Shunichi Suzuki said authorities could take “decisive steps” – language he has not used since Japan’s last intervention in 2022.
The dollar retreated to 151.00 yen on its own, and this move will continue if hedge funds and speculators begin to cover their substantial short yen positions. Tokyo’s helping hand will further speed up this process.
However, currency traders appear to be calm or skeptical about interventions. Dollar volatility against the yen rose only slightly on Wednesday and is still at its lowest level in two years.
HSBC analysts said the dollar is not in a “bubble-like state” at the end of 2022, so there is a risk that any action now will have “very limited success.”
Analysts at Morgan Stanley say there is little incentive from a fundamental perspective to intervene: Japan’s terms of trade have improved, a weak exchange rate has significantly boosted exporters’ earnings and exchange rates remain wide against the yen.
Joseph Wang, a former senior trader at the Federal Reserve Bank of New York, was more blunt: “It’s time for the authorities to put up or shut up. on Wednesday.
Japanese officials may not fully welcome the yen’s weakness, but equity investors do. It’s on the verge of a new high, up nearly 22% this year and on pace for its best quarter since the second quarter of 2009.
Another 1.5% gain by the end of the week would consolidate the index’s best quarterly results ever.
However, if Japanese stocks are on the rise, Chinese stocks are threatening to fall again. The country’s two main indexes fell more than 1% on Wednesday, their steepest declines in a month and dragging indexes lower in March.
Authorities in Beijing may have welcomed Chinese industrial profits returning to positive territory, but they will not want to see stocks return to their recent five-year lows and overseas investment dry up.
In some ways, the closest observers of whether Japan will intervene in the foreign exchange market are in Beijing. The yen is at its lowest level in more than 30 years against the British dollar, giving Japan a major competitive advantage over its rival.
Here are the key developments that could give markets a new direction on Thursday:
– Retail sales in Australia (February)
– Industrial production in Thailand (February)
– Summary of the Bank of Japan’s views following its March 18-19 policy meeting.
(Jamie McGeever; Editing by Josie Kao)