Finance
Intensifying yen rally is sinking Japanese shares and roiling global markets
(Bloomberg) — Unrest in Japanese financial markets intensified Monday as the yen extended its recovery against the dollar to nearly 13% from its July low and stocks headed for a bear market. Japanese government bond yields have fallen the most in twenty years.
Most read from Bloomberg
The intensity of the moves continued to surprise investors, affecting everyone from the big stock and currency traders to the big hedge funds and institutions. The fall in bond yields cast a shadow over banks’ profits, leading to a record 21% intraday drop in the intraday shares of Mitsubishi UFJ Financial Group Inc., the country’s largest lender.
The currency’s sharp appreciation, which has accelerated since the Bank of Japan raised rates on July 31, is also roiling global markets as it upends numerous investment strategies that relied on cheap borrowing in the yen.
“What a complex situation Japanese policymakers are in: easy monetary policy kills your currency and the slightest hint of tightening breaks your stock market,” said Charu Chanana, head of currency strategy at Saxo Markets. The yen could hit $140 to the dollar sooner rather than later if concerns about the risk of a U.S. recession continue to rise, further weighing on Japanese stocks, she said.
All 33 industry groups represented in the Topix index have fallen since the Bank of Japan raised interest rates. After entering a correction on Friday with a decline of more than 10% from the July peak, the gauge will enter a bear market on Monday with a decline of more than 20%.
“Falling stock prices mean that companies’ operating performance is expected to deteriorate in the future, and if the economy weakens, credit spreads could also come under greater pressure,” said Noritaka Oda, head of debt syndication at SMBC Nikko Securities Inc.
Ten-year Japanese government bond yields fell as much as 17 basis points, the highest level since 2003, according to data compiled by Bloomberg.
The sense of risk does not only come from Japan. The rally in global bonds that has pushed yields lower largely reflects concerns about the US economic outlook. Concerns are growing that the Federal Reserve is lagging behind in policy support and that global investors are ditching risky assets and seeking refuge in safe havens.
–With help from Ayai Tomisawa.
Most read from Bloomberg Businessweek
©2024 BloombergLP
