Ahead of important U.S. inflation data that could significantly impact the Federal Reserve’s policy stance, Asian markets edged up on Tuesday in cautious trade. Meanwhile, the weak yen flirted with one-year lows, returning to the intervention zone.
Tokyo’s Nikkei (.N225) rose 0.36%, while MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) increased by 0.49%. The S&P/ASX 200 index for Australia (.AXJO) increased by 0.61%.
After hitting a one-year low of 151.92 on Monday, the Japanese yen traded at 151.71 per dollar during Asian hours. Should the damaged currency fall below the 151.94 low from the previous year, it would be a new 33-year low.
Reiterating his regular theme that extreme swings were undesirable, Japanese Finance Minister Shunichi Suzuki stated on Tuesday that the government will take all necessary actions in response to currency movements.
Investors are focused on Tuesday’s U.S. inflation data, which is scheduled for later. Policymakers and Federal Reserve Chair Jerome Powell have expressed uncertainty about whether interest rates are high enough to control inflation.
According to Reuters-surveyed economists, headline U.S. consumer price inflation dropped from 3.7% in September to 3.3% in October, but the so-called core inflation rate—which excludes volatile components—remained constant.
ActivTrades dealer Anderson Alves states, “This data holds significant sway over the Federal Reserve’s future policy direction.”
A miss might give markets the impression that the Fed may hold off on additional rate rises, particularly in the less volatile core inflation component. On the other hand, a beat may cause a discernible repricing of the U.S. short-term interest curve.”
China’s blue-chip CSI 300 Index (.CSI300) increased by 0.40%, while Hong Kong’s Hang Seng Index (.HSI) gained by 0.57%. This is in anticipation of a meeting between the leaders of the two biggest economies in the world later this week.
The benchmark 10-year Treasury yield increased by 2.2 basis points to 4.654%, just below its one-week high of 4.696% on Monday.
Citing significant budget deficits and a drop in debt affordability, Moody’s downgraded the outlook for the U.S. AAA credit rating on Friday from “stable” to “negative.” Following competitor Fitch’s August downgrading of the U.S. top credit rating, Moody’s judged.
According to Dalma Capital CIO Gary Dugan, the action highlights the U.S. economy’s severe structural issues, including unmanageable debt levels and budgetary laxity.
“With the presidential election just a year away, it’s unlikely that the government will announce significant proposals to address these issues, given the unpopularity of promising spending cuts and tax increases,” Dugan said.
Should Congress fail to enact a temporary budget agreement, the United States may experience another partial government shutdown starting on Saturday.
YEN WATCH SUMMARY
Due to the widespread yen fall, traders are again watching to see if the Japanese government would step in. The currency has decreased by almost 14% this year compared to the dollar.
After hitting the year-to-date low on Monday during New York hours, the yen had a temporary increase versus the dollar, which experts ascribed to a rush of trade-in options due this week.
Standard Chartered’s Nicholas Chia, a macro analyst, said that the yen’s fluctuations indicate investors are wary of intervention risks, partially supporting government efforts by stifling unwarranted speculation.
Japan recently changed its position in the currency market in October of last year, purchasing yen and selling dollars. According to intervention statistics made public last month, the authorities have refrained from taking any further similar measures.
The dollar index, which compares the value of the U.S. dollar to six competitors, increased by 0.057% to 105.69. With the index down 1% in November, its three-month winning streak will likely end.
Following an OPEC report stating that market fundamentals remained solid, oil prices slightly increased. While Brent remained steady for the day, U.S. crude rose by 0.26% to $78.46 per barrel.