USDJPY: Asian indices bearish and U.S. concernsJapan's Nikkei 225 index closed with a loss of 1.55% on Wednesday, pressured by rising U.S. Treasury yields and the strength of the dollar against the yen (USD/JPY), which gained 0.38% on the session. This movement in the currency market reflects a growing preference for the dollar as a safe haven, driven by expectations of expansionary fiscal policies in the U.S. following the re-election of Donald Trump.
Impact of USD/JPY Strength on Asian Markets.
The rising USD/JPY, which continues to strengthen against the yen, directly affects Japanese exports, increasing export costs and reducing the competitiveness of Japanese companies in global markets. This is particularly relevant in sectors such as transportation equipment and trade, which suffered the biggest falls on the Tokyo stock exchange amid this volatile exchange rate situation.
The US dollar also strengthened against the yen, pushing the USD/JPY to a three-month high. The rise particularly affected Asian markets, which see rising yields and U.S. inflation as key factors that could cause the Federal Reserve to reconsider the pace of monetary easing. The Nikkei 225 was not the only index affected in Asia, as Hong Kong's Hang Seng and other regional indices also recorded declines, reflecting a cautious sentiment in the markets. In parallel, the US dollar futures index strengthened by 0.04% to 105.99, while the Nikkei volatility index showed a decline of 5.38%, suggesting a slight reduction in implied volatility.
Looking at the chart, the USDJPY has recovered much of its decline that began on July 11 through mid-September. This recovery has continued, recovering almost its value of 155,018 yen per dollar. It is currently very close to the checkpoint (POC) in the 157,000 yen area. RSI currently stands at 65.77%, so we are currently in a low zone of the long term channel so the extension does not seem to want to advance much further. Given so much current downward pressure, it is possible that the strength of the dollar, the thesis is that in the short term very possibly the Bank of Japan should take measures to control that undervalued yen, since a strong dollar seems to be affecting very negatively the Japanese market, so the target ceiling for Japan should not exceed 158.00 0 yen to avoid further damage to its economy.
Influence of Treasury Bonds and Inflation Expectations.
U.S. Treasury yields have risen significantly since Donald Trump's re-election, reaching levels not seen since July, driven by expectations of policies that could increase the fiscal deficit through higher spending and tax cuts. This rise in yields puts pressure on stocks as investors recalculate valuations on the prospect of higher long-term interest rates. Deeper deficit spending strangles equity valuations as risk-free rates rise. As the Federal Reserve is expected to maintain its vigilant stance, investors are closely watching upcoming U.S. inflation data to assess potential monetary policy adjustments.
Gold and Bitcoin as a Refuge
Amid market volatility, gold was up 0.15% on the day, trading around $2,612 an ounce, while Bitcoin recently hit a new all-time high near $90,000 before taking a breather in Wednesday's session, trading around $87,295. Markets have an expectation that bitcoin could reach $120,000 without corrections, especially aided by stimulus from China, which could support this momentum. Trump's proposed policies, which seek to make the United States the largest holder of cryptocurrencies on the planet and thus pay off its national debt with them, turning the country into “the cryptocurrency capital of the world” have generated optimism in the cryptocurrency sector, which anticipates a more flexible and favorable regulatory environment for the development of the digital market. In such a context, major investors such as Warren Buffet accumulate liquid assets by avoiding the stock market.
Crude
Crude oil for December delivery was up 0.15% at $68.22 per barrel, while gold futures for December delivery were up 0.23% at $2,612.30 per ounce. In currencies, USD/JPY rose 0.28% to 155.03 yen.
Conclusion
The combination of a strengthening dollar, a weakening yen and rising US Treasury yields has pressured Asian markets, with the Nikkei 225 down. Investors continue to watch USD/JPY and US inflation data, looking for opportunities in safe-haven assets and adjusting strategies ahead of the possible consequences of a more expansionary fiscal environment in the US.
Ion Jauregui - ActivTrades Analyst
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