The yen is weakening, making Japanese exports more competitive in the global marketplace and making it cheaper for overseas investors to buy Japanese assets. As a result, Japanese stocks are on a tear and outperforming their peers.
The Nikkei is on course for its best week in three months and is up 3% this year, while the S&P 500 and MSCI World Index are essentially flat, the Euro STOXX 50 is down more than 1% and the MSCI Asia Pacific ex-Japan index is down 4%.
Elsewhere in Asia on Thursday, attention shifts to Seoul and the Bank of Korea’s latest policy decision.
The BOK is widely expected to keep its key policy rate unchanged at 3.50% for an eighth consecutive meeting, but with inflation easing, speculation around when the BOK pivots is bound to intensify, especially with the Fed, ECB and other major central banks widely expected to start cutting rates soon.
Inflation is currently 3.2%, above the central bank’s 2% target but cooling once again, and the won is down around 2% against the dollar so far this year.
BOK Governor Rhee Chang-yong said in a New Year speech the central bank would adopt a “policy mix” to bring down inflation and warned that keeping monetary policy restrictive for too long posed risks.
Swaps markets currently point to a quarter-point rate cut by August and a strong probability of another by the end of the year.
