Masato Kanda, Japan’s top currency diplomat, protested the move on Wednesday, saying authorities were on “standby” to respond to the currency’s “one-sided, sharp” slide – ramping up the rhetoric around yen-buying intervention. But that lifted the currency only slightly and it hovers about 151.27 first thing.
The problem is the BOJ may have loosened its 10-year bond buying target rate of 1% – but it’s still committed to capping yields around there and did so yet again on Wednesday in another emergency operation that dragged yields back to 0.95%.
The weak yen and yield cap cheered Japan’s Nikkei stock index, which surged more than 2% earlier – helped by news of a more than doubling of Toyota’s profits that lifted the auto giant’s shares almost 5%.
Does the yen drama matter for U.S. markets? At the margin at least, the concern is that protracted yen intervention and dollar sales by Japan may also cut its demand for U.S. Treasuries at a sensitive time – while higher yields there drag Japanese bond investors back home.
Despite the U.S. Treasury forecasting a lower fourth-quarter borrowing need than previously flagged, the tension in the bond market remains ahead of its detailed future refinancing plans due later on Wednesday. Key will be the amount of this year’s whopping $1.6 trillion of bill sales it will have to roll into longer-term debt securities through 2024.
With the Federal Reserve widely expected to hold policy rates steady again on Wednesday, the Treasury plans may end up getting more bond market attention. Ten-year yields nudged back higher to 4.89% overnight ahead of the two events.
Fed officials will cast a wary eye over data released on Tuesday showing employment cost inflation picking up during the last quarter alongside accelerating house price rises in September.
But U.S. consumer confidence has softened, oil prices are falling again and the overseas demand picture is weakening.
Despite all the handwringing about the impact on energy prices from the Middle East conflict, U.S. crude prices fell to their lowest since August on Tuesday – to just above $80 per barrel and clocking year-on-year declines of some 7% that are the deepest since August too.
With euro zone GDP numbers showing a contraction of the bloc’s economy in the third quarter – in stark contrast to the boom in the United States – China’s economy again showed signs of faltering on Wednesday.
Chinese factory activity unexpectedly contracted in October, a private survey showed on Wednesday, adding to a downbeat official manufacturing purchasing managers’ index on Tuesday.
