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Categorized | Currencies

Stronger yen piles pressure on Japan equities


Posted on November 28, 2016

Monday 02.30 GMT.

Overview

Stock markets in Asia were mixed on Monday, with a stronger yen in response to a weaker dollar putting Japanese shares under pressure and jeopardising their lengthy winning streak.

Hot topic

Strength in the yen — and other currencies — is as much a function of dollar weakness as anything else, but the Japanese unit grabbed headlines on Monday for the size of its move. Up 1.3 per cent at ¥‎111.66 per dollar, the yen is on track for its strongest session since September 21. On Friday, it was threatening to cross ¥‎114.

However, the yen is 6.6 per cent weaker in November, spurred by a rally in the US dollar as Donald Trump was elected US president and markets surmised his policies would spur inflation, which may in turn prompt the Federal Reserve to lift interest rates at a faster pace than previously thought. The yen’s drop had also supported an 11-day winning streak for the Topix that stretched to Friday and now looks in jeopardy.

What to watch

It will be difficult to drag dollar and yen moves from investors’ gaze, but markets will also be readying themselves for Wednesday’s Opec meeting in Vienna. Oil prices had been buoyed in the first half of last week by hopes members of the cartel would use this week’s meeting to agree to production cuts that would help address global oversupply.

Investors are still nervous, and in Friday’s half-session following the US Thanksgiving holiday, oil prices fell more than 3 per cent. Brent crude, the international benchmark, was down a further 0.9 per cent at $46.80 a barrel, while West Texas Intermediate was off 0.8 per cent at $45.69.

Equities

Wall Street’s four main equities gauges staged a “grand slam” and closed at record highs in a half-day of trading on Friday. But the positive mood had not spilled over into Asia on Monday.

The stronger yen has helped push Japan’s Topix 0.4 per cent lower, while the Nikkei 225 was down 0.8 per cent. Energy stocks led Australia’s S&P/ASX 200 0.4 per cent lower.

Hong Kong’s Hang Seng was up 0.5 per cent, while China’s Shanghai Composite rose 0.6 per cent. After market close on Friday, regulators announced a trading link between Hong Kong and China’s tech-focused Shenzhen Composite would go live on December 5. The index was up 0.2 per cent on Monday.

Forex

Asian currencies were higher as the US dollar weakened. The yen was the best performer, followed by South Korea’s won, up 0.7 per cent as policymakers said they would take steps to stabilise markets, and the New Zealand dollar, which rose 0.5 per cent. Emerging markets currencies such as Malaysia’s ringgit, the Philippine peso and Indonesian rupiah enjoyed some reprieve on Monday after hitting multi-year lows last week.

Fixed income

Japan’s government bond market has snapped back today alongside the stronger yen. The yield (which moves inversely to price) on 10-year JGBs was down 2.4 basis points at 0.18 per cent, the biggest move since September 20, and the lowest level for the yield since the middle of this month.

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