Yen Shaken by Japan PM’s ‘Unseemly’ Rate Comments

By Jamie McGeever

A look at the upcoming day in Asian markets reveals significant developments, particularly in Japan. The foreign exchange sector is currently absorbing the recent comments made by new Prime Minister Shigeru Ishiba regarding monetary policy after his meeting with Bank of Japan (BOJ) Governor Kazuo Ueda.

Ishiba stated, "I do not believe that we are in an environment that would require us to raise interest rates further," which led to a significant depreciation of the yen. On Wednesday, the yen fell nearly 2% against the dollar, marking its largest drop since February of the previous year. This decrease is one of the most substantial declines witnessed in over a decade, particularly outside the pandemic-related fluctuations of March 2020.

While meetings between the prime minister and the central bank governor are not uncommon, the timing and tone of Ishiba’s remarks are noteworthy, especially as they came just days after he took office. Economists have described his comments as uncharacteristically direct, with Phil Suttle from Washington noting that they were "somewhat unseemly."

Market analysts at JP Morgan anticipate a "market-friendly" approach from the Ishiba administration until next summer, aligning with the upcoming upper house election, which could ease market apprehension regarding growth.

The yen’s sharp fall highlights the extent of current market positioning, with U.S. futures market data indicating that hedge funds are holding their largest long position in yen since 2016.

Asahi Noguchi, a dovish BOJ board member who opposed the rate hike in July, is scheduled to deliver a speech and host a media conference on Thursday, where he will likely address Ishiba’s remarks.

In broader Asia, Thailand’s finance minister, Pichai Chunhavajira, alongside central bank head Sethaput Suthiwartnarueput, will also speak at a central bank event on Thursday.

Economic data releases for the region include purchasing managers index figures from Australia and Singapore, along with the latest international trade statistics from Australia.

The dollar’s rise against the yen, along with newly released U.S. economic data, has propelled the greenback to a three-week high against a range of currencies, marking its third consecutive daily increase of approximately 0.5%.

Rising tensions between Iran and Israel have been contributing to safe-haven demand for the dollar, complemented by a rebound in oil prices, which have exceeded $76 a barrel for the first time in a month, closing with about a 1% increase.

Additionally, investors are keeping an eye on news concerning the upcoming votes by France, Greece, Italy, and Poland on Friday. These countries are expected to support imposing substantial tariffs—up to 45%—on electric vehicle imports from China, potentially leading to significant trade tensions and retaliation from Beijing.

Germany’s stance remains uncertain. Finance Minister Christian Lindner emphasized that Germany should oppose the EU proposal, noting that a trade war with China could harm vital sectors in Europe and Germany.

Key developments to watch for direction in Asian markets on Thursday include:

• Australia’s trade data (August)
• PMIs for Japan, Australia, and Singapore (September)
• Hong Kong’s retail sales figures (August)