Yen surges to mid-160 range momentarily as US employment statistics and intervention speculation intertwine

Yen surges to mid-160 yen per dollar on intervention speculation and US employment statistics In foreign exchange markets on the 2nd, the yen rose against the dollar to as high as 161.15 yen temporarily. It sharply reversed from the upper 162 yen range the previous day. The background was that the US June employment report showed job growth significantly below expectations, causing Fed rate hike expectations to recede and dollar selling to accelerate. Additionally, a Reuters report that the government is considering intervention aimed at inflicting 'pain' on speculators spurred wariness and prompted yen buying. Vice Finance Minister Mimura refrained from commenting. 12

Nikkei average falls 1,741 yen to 68,733 on broad decline in semiconductor stocks In Tokyo stock markets on the 2nd, the Nikkei average plunged 1,741 yen from the previous day to 68,733 yen. The previous day’s US market saw a sharp decline in the semiconductor stock index, leading to concentrated selling in stocks with large weighting in the Nikkei, such as Advantest, Tokyo Electron, and Kioxia. On the other hand, the TOPIX edged up, highlighting a shift of funds into value stocks. About 80% of Prime Market stocks rose. 345

10-year government bond yield at 2.7%, highest in 29 years and 1 month The Ministry of Finance on the 2nd set the coupon rate for the July-issued 10-year government bond at 2.7% per annum. This is a 0.3% rise from June's 2.4%, marking the highest level in about 29 years since May 1997. The yen's weakness and inflation concerns due to uncertainty in the Middle East are pushing up long-term interest rates. 6

Monetary base down 13.7%, decline accelerates as BOJ reduces bond purchases The Bank of Japan announced on the 2nd that the average monetary base balance for June was 559.2039 trillion yen, down 13.7% year-on-year. The rate of decline is the largest since March 2007, and the balance is the lowest since June 2020. The reduction in government bond purchases and the maturity of loan support operations expanded the decline in current account deposits at the BOJ.

Megabanks raise interest rates in August, headwinds for loans become clear Following the BOJ's June rate hike, the three megabanks—Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho—will raise their short-term prime rate from 2.125% to 2.375% in August. Variable-rate housing loan rates will also rise in tandem. Meanwhile, the increase in ordinary deposit rates is limited to 0.1%, so the benefit to depositors is limited. 7

Nagahama says BOJ should continue gradual rate hikes, expects two more hikes this year Toshihiro Nagahama, a private-sector member of the Council on Economic and Fiscal Policy, stated on the 2nd that the BOJ should continue raising interest rates at a gradual pace. He estimates the neutral rate at around the mid-1% range and predicts another rate hike at the end of this year, followed by another next summer, after which the bank would adopt a wait-and-see stance. He noted that this would also be effective in correcting the excessive yen weakness. 8

Prolonged yen weakness risks US Treasury sales, Japan is largest holder An analysis article by Business Insider Japan points out that as the yen sinks to a 40-year low, if Japan sells US Treasuries to raise funds for yen intervention, it could send ripples through the world's largest bond market. The $75 billion decline in foreign securities holdings in the May foreign reserve statistics likely reflects US Treasury sales during the previous intervention, and further intervention risks intensifying selling pressure. 9