Morning Bid: Japan drags down bonds as US payrolls loom from Tom Westbrook; here’s a look at what the day holds for markets worldwide and in Europe. Nine of the G10 central banks are expected to reduce their interest rates in the coming year, not Japan.
The open talk that Bank of Japan Governor Kazuo Ueda has had about a tough policy year ahead and various pathways out of zero interest rates have jolted short sellers out of the currency. They are frightened that the long-awaited rise in the yen may have begun.
Since March, the yen has been on an upward trend for the first time in four consecutive weeks. It managed to maintain its stability in Tokyo trading on Friday, possibly because statistics revealed that the economy slowed down more significantly than was initially believed during the third quarter, making the subsequent policy moves more challenging.
Japan’s government bonds have been sold in large quantities, which has caused rates throughout the world to rise. The Nikkei 225 index reached a one-month low.
Because it may cause carry trades to be unwound and a reorganization of the flow of Japanese capital, the repercussions of interest rates that are higher than zero in Japan might be enormous. In particular, the likelihood that the Bank of Japan would raise interest rates while the rest of the world is reducing them could have a multiplicative effect.
The next BOJ meeting will take place on December 19th. Before that time, the European Central Bank, the Bank of England, and the Federal Reserve will all meet, and the markets anticipate that interest rates will remain unchanged. The non-farm payroll data for the United States, which is expected to be released later on Friday, will finish the week and serve as a benchmark for policymakers.
Because a few recent data indicate a cooling labor market and decreasing inflation, which were the driving forces behind a big bond rally in expectation of rate reduction, an upward surprise in the jobs statistics would likely provoke the most turmoil in the markets.
When it comes to the European schedule, Friday is relatively empty.
Similarly, the Central Bank of India did not change its primary lending rate, as was anticipated. This occurred elsewhere in Asia. According to people with direct knowledge of the situation who spoke to Reuters, the National Pension Service and the Central Bank of South Korea are now discussing expanding their foreign exchange swap program. As a result, the value of the won saw a significant increase.
The Australian gas company Santos (STO.AX) saw its stock price increase by 6%. In comparison, the stock of Woodside (WDS.AX) had a decrease of 0.5% after the confirmation of the rumors that the two firms were in exploratory merger negotiations.
Several important events that might have an impact on the markets on Friday:
The final German consumer price index and non-farm payrolls in the United States