A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Land of the Rising Yen
Share this story:
Andrew Kositkun Foreign Exchange Head Trader
Equity markets around the world continue to move higher with markets taking a decisively glass half full mode as they are ignoring US-China tensions and focusing on the lifting of virus restrictions. Despite equities moving higher, the global economy remains on track to decelerate at its fastest pace since the Great Recession. During this same period, the yen depreciated substantially, leaving the question of whether or not history will repeat itself.
Admittedly, history tends to repeat itself with some variation. For example, the Tokyo Olympic Games, originally scheduled for 1940, was cancelled, creating an ironic parallel to the current environment. However, the view remains that the current situation is different.
When the yen was first established in 1871, it was set at parity (1 USD=1 JPY) with the USD. USDJPY then depreciated to 2.5 after a series of events including the Great Kanto earthquake in 1923. The Great Depression started in 1929 and caused sharp deflationary pressures. To combat this, Finance Minister Takahashi expanded fiscal spending, pushing USDJPY to ~4 in 1932. As Japan escaped deflation, Takahashi wanted to restore fiscal soundness, but was assassinated by rebelling military officers, leading to the continuation of fiscal expansion that further accelerated once Japan went to war.
During the Second World War, there wasn’t a USDJPY market with a military conversion market used after the war ended. It wasn’t until 1949 that a USDJPY market was established for general use with USDJPY set at 360 by the US military using various factors including inflation expectations.
Clearly, the global landscape now and back then are different, but we can still draw lessons from history. Specifically, fiscal and monetary stimulus to heal economic damage are not issues themselves. It’s how authorities exit these stimulus policies once the economy recovers that is critical.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
Japan’s Nikkei index is one of the top performing equity markets, on the day, as Japan lifted its nationwide state of emergency. European stocks are also up as Germany announced plans to lift travel warnings for 31 European countries. In the UK, the country has outlined plans to re-open retail outlets.
Protests swept through Hong Kong over the weekends as pro-democracy demonstrators expressed their opposition against Beijing’s move to impose sweeping national security laws.
US-China tensions continue to simmer with Beijing condemning the US’ blacklisting of 33 Chinese firms. China’s crackdown on Xinjiang, which promoted the US’ actions, was defended as a counter-terrorist move. Additionally, China’s central bank continues to let the yuan drift weaker with its fix being the weakest since early 2008.
Negative interest rate talks remain alive and well in the UK as the BoE’s Chief Economist confirmed the bank is still looking at negative rates but did stress that reviewing and implementing are two separate things.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Non-deposit investment products:
•
Are not FDIC insured,
•
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
•
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
View this email in your browser Want to watch a recording of yesterday's Simply Successful Investing Webinar. Just click here and use passcode 5q59Z&3M.
Tune in for a guide to ETFs and investing strategies for potential long-term success. View in a browser Fidelity Fidelity Log in Creating a portfolio with ETFs: Why and how Creating a portfolio with ETFs: Why and how
Exclusive webinar: The market, my portfolio, and options. Exclusive webinar: The market, my portfolio, and options. View in a browser Fidelity Fidelity Log in The market, my portfolio, and options The market, my portfolio, and options
Comments
Post a Comment