Japanese equity investors are sighing with relief this morning, as Golden Week holidays are upon us, after the Nikkei fell another 3% yesterday. The strength of the yen is cited as the reason, as it continues to confound most market observers by hitting 18 month highs against the US dollar. Trading this morning in London with a 105 handle it has appreciated by nearly 16% since the recent low seen in June last year. The impact of this strength on the Japanese economy is thought to undercut profits for Japanese exporters by more than ¥1tn ($9.37 bn) and provides a further problem for Prime Minister Abe and his efforts to kick start the domestic economy. In fact the yen accelerated its current rally after the BoJ left policy on hold last week, against market expectations of a further loosening. The yield of the 30-yr Japanese Government now yields under 0.257% approaching the all-time low of 0.254% seen a couple of weeks ago and look set to attempt to imitate the negative yields seen on 10-yr maturities since February this year.
At the same time, the US Treasury’s semi-annual report on foreign exchange policies of the United States’ major trading partners has a new inclusion. There is a new list of countries to be watched closely for currency policies which provide an unfair trade advantage over US companies. On this list Japan, China, Germany, Taiwan and South Korea are mentioned. Not since 1994 has the report named any country and it is thought to be something of a warning shot by the US Treasury. However, currently it is the US dollar that continues to weaken although the US remains one of the few countries in the world with a tightening bias.