Asian shares continue to fall, while the yen strengthens on potential intervention hints

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Last Updated on September 14, 2022 by Bitfinsider

The dollar’s unrelenting rise against the yen came to a halt on Wednesday (Sep 14), as US data shattered predictions for an impending inflation peak. Japan, however, sent the clearest message yet that it was displeased with the rapid losses in the yen.

According to data released on Tuesday, the US headline Consumer Price Index increased by 0.1% on a monthly basis, defying forecasts of a 0.1% fall. In instance, core inflation, which does not include energy and volatile food costs, increased to 0.6%.

The safe-haven dollar experienced its greatest gain since early 2020, Wall Street experienced its steepest decline in two years, and two-year Treasury yields, which climb in response to speculators’ anticipation of increasing Fed fund rates, reached their highest level in fifteen years.

With the regional Euro Stoxx 50 futures, the German DAX futures, and the FTSE futures all down more than 0.7 percent, the stock market collapse is expected to affect European markets.

In Asia, MSCI’s largest index of Asia-Pacific equities outside of Japan down 2.2% on Wednesday, being pulled down by resource-rich Australia’s 2.4% decline, Hong Kong’s Hang Seng index’s 2.5% decline, and Chinese blue chips’ 1.5% decline.

The Nikkei in Japan fell 2.6%.

The S&P 500 futures and Nasdaq futures both increased by 0.2% following an overnight sharp selloff in stocks.

According to CME’s FedWatch tool, financial markets have now fully priced in an interest rate increase of at least 75 basis points following the FOMC’s policy meeting next week, with a 38% possibility of a super-sized, full-percentage-point increase to the Fed funds target rate.

A 100 bps boost has no chance of happening the day before.

The rate-sensitive Japanese yen had been under pressure from a strong US dollar, pushing it almost to a 24-year low at 149.96 yen, before giving up some of the gains on news that the Bank of Japan had checked rates in apparent anticipation of a currency intervention.

An intervention to buy yen is uncommon. Japan last intervened to protect its currency in 1998, when the Asian financial crisis caused a sell-off of the yen and a significant outflow of money.

Currency intervention was mentioned by Japan’s Finance Minister Shunichi Suzuki earlier in the day as one of the possibilities the government would take into consideration.

The dollar was currently trading at 143.7 yen, down 0.6% on the day.

Many traders continued to have their doubts about an impending intervention, but the spike in the yen indicated mounting anxiety. The timing of the BOJ’s action also indicates that 145 cents on the dollar will be a crucial level for the markets and the government.

The curve difference between the benchmark ten-year yields and the two-year US Treasury yield is currently hovering around 34 basis points, up from just 16 bps a week ago. On Friday, the two-year US Treasury yield set a fresh 15-year high of 3.8040 percent before falling to 3.777 percent.

The yield curve inversion is typically viewed as a recessionary warning sign.

The 10-year Treasury note yield remained unchanged at 3.1478 percent.

On Friday, oil prices slightly declined. US crude prices fell by 0.6% to US$86.82 per barrel, and Brent prices fell by a similar amount to US$92.65.

Gold increased little. The price of spot gold was $173.02 per ounce.

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