The yen surged to an 18-month peak on Friday as investors wagered the Bank of Japan (BoJ) might be done adding fresh stimulus to the economy, hurting prospects for Japanese exporters with a move that rippled through share markets across the Asian region.
Perhaps taking advantage of Japan’s absence for a holiday, speculators smashed through the yen’s previous top at 107.63 per dollar earlier this month and drove the currency as high as 107.075. It was last trading at 107.28.
It had been at 111.67 before Thursday’s surprise decision by the BoJ not to ease policy further.
The euro likewise dropped to 122.21 yen, not quite managing to breach its 2016 trough around 121.71.
The sheer speed of the move stirred speculation the Japanese authorities might intervene to restrain the yen. Japanese officials on Thursday warned markets that they would be on guard even over the Golden Week holidays on Friday and next week.
Some analysts, however, seemed unconvinced over how much Japan would do to rein in the yen.
“The steady hand on Thursday is consistent with the yen being some way down the BoJ’s list of priorities,” noted Sean Callow, a senior currency analyst at Westpac.
“With the looming G7 meeting reinforcing the low risk of FX intervention, markets are likely to keep pressing their luck, with no obvious barrier to a test of 105.”
The renewed rise in the yen has badly bruised exporters and left the Nikkei down 5% for the week on Thursday. While the cash market was shut on Friday, Nikkei futures on the CME were down another 1% at 16,170.
Markets across the region suffered in sympathy and MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.4%, on track for a decline of 1.6% for the week.
Chinese shares fared a little better, with the CSI 300 index up 0.3%, while the Shanghai Composite index gained about 0.1%. They were still down 0.2% and 0.3% for the week, respectively.
South Korean stocks slipped 0.3%, heading for a weekly loss of 1%. Taiwan slid 1.1%, down 2.2% for the week.
AMAZON JUMPS AFTER THE BELL
On Wall Street, shares took a late spill after Apple shed 3% when billionaire investor Carl Icahn said he no longer has a position in the tech giant.
Amazon sweetened the mood a little after the close by blowing away earnings expectations for its first quarter, sending the stock up almost 13%.
The Dow ended Thursday down 1.17%, while the S&P 500 lost 0.92% and the Nasdaq 1.19%. European shares had started weaker but steadied toward their close.
Not helping sentiment was news the US economy braked hard in the first quarter to its slowest pace in two years as consumer spending softened and a strong dollar undercut exports.
Gross domestic product increased at a 0.5% annual rate, the weakest since early 2014.
CHINA RAISES YUAN RATE
China on Friday raised the exchange rate for the yuan currency against the US dollar by 0.56% from the previous day, the biggest increase in almost 11 years.
The People’s Bank of China (PBoC) fixed the yuan at 6.4589 to the greenback, according to the China Foreign Exchange Trade System, which operates the national foreign exchange market.
China only allows the yuan to rise or fall two percent on either side of the daily fix, to prevent volatility and maintain control over the currency.
The spot yuan opened at 6.4630 per dollar and was changing hands at 6.4744 at midday, only 0.05% stronger than the previous close and 155 pips weaker than the midpoint.
“It’s weird that big banks are not out selling dollars given that the spread between the spot rate and the midpoint has reached almost 150 pips,” said a trader at a Chinese commercial bank in Shanghai. “Either they’ve let their guard down or they are still testing how tamed the market has become under the central bank’s firm hand.”
However, the yuan lost some of its early gains against the dollar, as state-owned banks appeared to withhold offering dollar liquidity in the face of strong corporate demand and buying from market players taking profits, traders said.