Forex Analysis & Reviews: 23.06.2022 - The yen risks going into a...

23.06.2022 11:41 PM

The yen risks going into a "negative spiral" as Asia-Pacific markets are growing moderately

Asia-Pacific region and the US Federal Reserve

Stock markets in the Asia-Pacific region (APR) on the background of the overnight fall in Wall Street feel relatively good. Of course, the wave of investors leaving risky assets in the wake of the speech of the head of the US Federal Reserve could not pass by the Asian stock exchanges. And even more so, the situation with prices for raw materials and, first of all, for oil, influenced the movement of the indices.

Fed Chairman Jerome Powell, in his speech yesterday, urged companies selling automotive fuel to the public to abandon federal mark-ups for three months to reduce the burden on households during the holidays. After Powell said that a recession is "certainly possible" and also presented his proposal plan for a three-month "holiday" for gasoline and diesel prices in the US, commodities quotes collapsed. During a recession, the economy falls, production buys less raw materials and uses less energy, money depreciates, and consumer demand also weakens.

It is clear that the profits of some companies in these conditions are also declining, but falling in different ways. And some, on the contrary, grow or even shoot completely unexpectedly even for their owners and bring them record incomes. Did Zoom founder Eric Yuan know in 2012 that eight years from now, during the COVID pandemic, his company would make a whopping $4 billion in three months? Now the name of the Chinese American is in the second hundred richest people on the planet, and the Zoom platform is used by people and institutions around the world.

China

The Chinese market has lost a lot, having missed such a resident at one time. By the way, today the Chinese stock exchange has risen on one of the indices to the highest level. In our previous material, we already mentioned that investors are waiting for support from the country's authorities. And today, the promise of help was still made: President Xi Jinping promised to fulfill the economic tasks for the year. He also said that China will "strengthen its macroeconomic policy adjustment and take more effective measures to achieve social and economic development goals for 2022 and minimize the impact of COVID-19."

And Chinese Prime Minister Li Keqiang urged the authorities to propose and implement a series of measures to stimulate consumption (for example, to buy electric cars). In response, shares of ChongQing Changan (Chinese car maker, which is one of the three largest manufacturers of passenger transport) rose immediately by +10%.

Hong Kong

The Hong Kong stock market also rose on the support of Chinese stocks. Growth leaders include LK Technology (+14.8%), BYD (+4.9%), Alibaba Holdings (+4.3%), Koolearn (+3.2%), NTES (+2.4%), Tencent (+1.3%). The optimism of traders was added by the statements of the Chinese authorities about the plans for the healthy development of large payment companies in the country and the financial technology sector, as well as the fact that China has room to maneuver in monetary policy and that the country will be able to curb inflation and meet food security needs.

Australia

The Australian market rose today on the shares of technology and banking companies. Moreover, their growth was so strong that it outweighed the losses in the energy and mining sectors and brought the benchmark index from negative to positive. Banking heavyweights ANZ Bank (+1.1%), NAB (+0.5%), Westpac +(0.5%), Commonwealth Bank +(0.2%) added points to the index. However, the high-tech sector became the undisputed leader due to the strong growth of Block (+4.7%), Seek (+3.5%), Xero (+1.9%) stocks.

Japan

Japanese stocks traded unevenly on Wednesday as investors continued to assess the risks of a global economic slowdown. As a result, some of the gains made earlier after a lackluster session on Wall Street were lost. Natural resource stocks tumbled as recession worries weighed on commodity prices. Osaka Titanium (-6.2%), Inpex (-2.6%), Nippon Steel (-1.1%) traded down. Losses helped reduce some heavyweights of the index: Toshiba (+3.5%), Fast Retailing (+1.9%), SoftBank Group (+1.6%).

Yen

Recall that Bank of Japan Governor Haruhiko Kuroda adheres to an ultra-light monetary policy to support the country's economy. To do this, the Japanese central bank uses very low interest rates and buys 10-year Japanese government bonds (JGB). As a result, the US and Japanese central banks are moving in opposite directions, and the yen has already managed to test the low of the end of the last century (24-year at 136.71). This afternoon, however, the rate of the pair has slightly recovered - to the level of 134.54.

USD/JPY (chart at 15.00 GMT)

This happened, among other things, because the yen's appeal as a safe haven is growing in the face of the threat of a recession and as market fears intensify. However, former BOJ official and now a member of a key government commission, Yuri Okina, criticized the policies of the former leadership. She believes that the BOJ's determination to keep the cost of borrowing at an ultra-low level is causing a "negative spiral" of the weakening of the yen. "Recent moves are very abrupt and problematic. The yen could weaken further as the interest rate gap between Japan and the US widens," Okina said.