Japan Stocks Decline After Hot U.S. CPI Report, Yen-Tumble Raises Fresh Intervention Risks

Akira Ito
11 Apr, 2024
Tokyo

Stocks in Tokyo declined following the weakness in New York after the latest inflation report dashed all hopes of an imminent interest rate cut. 

Asian markets were on the defensive after the hotter-than-expected U.S. inflation in March dampened the hopes of a rate cut in June. 

Investors pared back rate-cut expectations after U.S. inflation accelerated for the third month in a row in March to 3.5%. 

Market participants are worried that persistent inflation above the Fed's target rate of 2% may force the Federal Reserve to push rate cuts all the way into 2025, contrary to the Fed's projection of as many as three rate cuts this year. 

 

Yen Weakness Prompt Verbal Intervention from the Finance Ministry 

The yen continued its decline and approached 153 against the U.S. dollar, the lowest since July 1990, sparking worries about government intervention. 

The yen traded at 152.70 against the U.S. dollar in Tokyo at 1:30 p.m. local time. 

The latest decline in the yen prompted Finance Minister Shunichi Suzuki to repeat his previous warnings on Thursday, highlighting that excessive currency swings are not desirable and currency markets should reflect economic fundamentals. 

Despite the talk of government intervention, any effort by the ministry of finance coordinated with the central bank is largely going to be symbolic and temporary because the longer-term trend for the Japanese yen is still facing downwards. 

Investors have been selling yen after the Bank of Japan ended its negative rate regime and lifted its policy rate for the first time since February 2007. 

But the BOJ's rate increase to 0.1% failed to sway market participants, as the gap with the U.S. interest rate remains large. 

Moreover, U.S. interest rates are likely to stay at the current level of 5.5% amid the persistent inflation rate above 2%. 

 

Higher Commodity Prices Stoke Inflation Fears In Japan 

Investors were also on guard after copper, aluminum, and gold traded at new highs following the reports over the last two weeks of strong manufacturing activities in the U.S., Japan, India, and Europe.

Global manufacturing activities have been growing at a steady pace, and China's manufacturing sector growth has improved, supported by better-than-expected exports of manufactured goods. 

 

Japan's Money Supply Expands in March

The M2 money supply in March rose 2.5% to 1,243.9 trillion yen, the Bank of Japan reported Thursday.

M3 money supply increased at a slower pace of 1.8% to 1,596.8 trillion yen, and the L money stock, which includes all forms of money supplied to the economy, rose 2.1% to 2,127.2 trillion yen. 

In the first quarter, M2 increased 2.5%, M3 rose 1.8%, and L advanced 2.2% from a year ago, respectively. 

 

Japan Stock Movers 

The Nikkei 225 Stock Average decreased 0.4% to 39,429.36, and the Topix index increased 0.2% to 2,748.17. 

Tech stocks were among the leading decliners, and financial stocks were among the leading gainers in Thursday's trading. 

SoftBank, Advantest, Tokyo Electron, Screen Holdings, Disco Corp., and Sakura Internet declined between 1.5% and 4%. 

Banks advanced after the yield on 10-year Japanese government bonds rose to 0.85% after investors dialed down U.S. interest rate expectations. 

Mitsubishi UFJ, Sumitomo Mitsubishi, and Mizuho Financial rose between 0.3% and 0.5%.