In fact, the yen is close to a 50-year low on a real effective exchange rate basis. With stocks hovering around 33-year highs and base rates still negative, financial conditions in Japan are the loosest since 1997, according to Goldman Sachs.
Goldman’s emerging markets financial conditions index is the lowest in 16 months, which stands in contrast to developed economies where rates, bond yields borrowing costs of all stripes are rising sharply.
The U.S. two-year yield jumped 15 basis points on Thursday, its biggest rise in a month, and traders are now pricing in at least one more quarter point rate hike this year. Fed Chair Jerome Powell this week indicated he thinks two will be delivered.
The good news is rate expectations are being ramped up because the economy is strong. Thursday’s U.S. data were unambiguously positive – a chunky upward revision to Q1 GDP growth and the biggest fall in weekly jobless claims since 2021 point to ‘no landing’, never mind a ‘soft landing’
But growth and earnings will suffer at some point. The U.S. yield curve on Thursday inverted further to within a few basis points of the 40-year low seen in March. This is a warning sign that investors think something, somewhere, at some future point, will ‘break’.
