Japanese Investors Take Advantage of Strong Yen, US Labor Market Slows Gradually
Last week, Japanese investors seized the opportunity presented by the strong yen to invest in foreign bonds and stocks. Despite the US labor market hitting a four-week low, experts assure that there is no reason to panic as the slowdown is gradual.
While Japanese bank shares faced a 28% drop in the first three sessions of the month, official actions from Japan were limited to a deputy governor of the central bank discussing the situation. Market trends indicate a possible interest rate hike before the year ends.
Speculations of a 50 basis point cut by the Fed next month seem exaggerated, as volatility in the market is subsiding and the US Treasury yield is stabilizing. Geopolitical risks, especially in the Middle East, remain a concern as tensions persist.
Asian markets are showing mixed trends, with the yen gaining against G10 currencies but Asian Pacific equities rallying. European markets are also performing well, with benchmark 10-year yields showing a slight decrease.
In Asia, China reported a stable inflation rate while core prices rose slightly. Japan is expected to report positive economic growth in Q2, with the Bank of Japan’s outlook likely unchanged. Australia is set to release employment data, while the Reserve Bank of New Zealand may consider easing monetary policy.
The dollar is holding steady against the yen, with potential for near-term gains. The is also showing positive signs, with momentum indicators suggesting further growth. With the yen weakening, the is expected to rise further against the dollar.
In Europe, economic diaries are light as the eurozone and UK report minimal market-sensitive data. The ECB is expected to cut rates next month, while the chances of a BOE move are decreasing. The is maintaining a consolidative tone, indicating stability in the market.
The euro has been trading in a narrow range just above $1.0910, showing signs of stability after hitting a new low near $1.0880. Meanwhile, sterling is looking more positive with a potential reversal higher.
On the other hand, the US dollar has been consolidating against the Canadian dollar, hovering between CAD1.3730 and CAD1.3765. The dollar’s momentum indicators are falling, indicating a possible further downside.
In America, the focus is on the US budget deficit, which remains large despite economic growth and low unemployment. The US federal government has accumulated a $1.27 trillion deficit through June, down from $1.39 trillion in the same period last year.
Canada’s job report for July shows a slowdown in full-time job growth, with the unemployment rate rising to 6.4% in June 2024. However, wage growth for permanent employees has increased to 5.5% year-over-year.
The Bank of Mexico unexpectedly cut its target rate to 10.75% after a rise in headline CPI. The market is pricing in further rate cuts over the next six months.
Overall, the euro and sterling are showing signs of recovery, while the US dollar is consolidating against the Canadian dollar. The US budget deficit and Canada’s job market performance are also key factors to watch. Stay informed to make wise investment decisions.