For currency traders who have been battered by increased volatility, this week might turn out to be the moment of truth.
The yen, a traditional haven, retreated last week from the biggest two-week rally since mid-2013 on speculation the Bank of Japan (BOJ) is to increase stimulus on Thursday or Friday to revive inflation.
The US dollar strengthened for a fourth week last week before the US Federal Reserve meets tomorrow and on Wednesday to consider follow-on policy after raising interest rates last month for the first time in almost a decade.
The US$5.3 trillion per day currency market started this year in risk-off mode on concerns that a cooling Chinese economy would send global demand and inflation rates tumbling. Even after a late-week rebound in crude oil and global equities, the yen has been the best-performing currency this month.
“Will central banks come to the rescue, or is what’s going on in China going to dominate? We think it’s going to be the latter,” New York-based Morgan Stanley Inc cohead of US currency strategy Calvin Tse (謝禮頌) said.
“Central banks coming in to ease may release a wave of euphoria into the market that we don’t think is lasting. We’re still bullish on the yen,” he added.
The yen fell 1.5 percent this week to ￥118.78 per US dollar in New York, after touching a one-year high. Japan’s currency gained almost 3 percent over the previous two weeks.
Hedge funds and other large speculators increased net futures positions that profit from yen gains versus the dollar to 37,653 contracts as of Tuesday last week, the most in three years, according to US Commodity Futures Trading Commission data.
Market speculation is growing that the BOJ might expand its stimulus program during its rate review this week. Economists expect a cut in inflation forecasts, and some are not ruling out more surprises.
“We maintain our core scenario of no easing at this meeting, but acknowledge the risk of an unexpected announcement from the BOJ next week,” Standard Chartered PLC economist Betty Rui Wang (王蕊) said.
The BOJ meeting coincides with data, including on factory output and jobs for last month, which could reinforce fears the economy is still struggling after years of stagnation.
The US central bank is also forecast to keep its federal funds rate target unchanged at 0.25 percent to 0.5 percent when policymakers conclude their meeting on Wednesday and investors are to study the policy statement for hints at longer-term trends.
Policymakers have signaled they might raise rates four time this year, while traders are betting on just one increase, with the China-led global slowdown calling into question the need for further monetary tightening.
Against a backdrop of volatile trading in global stocks, Fed officials have in recent weeks shrugged off the impact of financial market swings on their decisions.
However, falling inflation assumptions, coupled with the market turbulence, could lead them to signal deepening concern over the US and world economic outlooks.
“If the statement acknowledges increased risks without mention of expected resilience in the medium-term outlook, this would be a dovish sign,” analysts at BNP Paribas said in a note.
Strategists in a Bloomberg survey forecast the dollar to strengthen to US$1.05 against the euro this year, the smallest annual advance since the dollar appreciation cycle began in 2014.
The US currency is projected to strengthen to ￥125, according to a separate survey.
“It’s going to be very challenging for the Fed to convey a message that satisfies both the doves and the hawks,” Commonwealth Bank of Australia London-based foreign exchange strategist Peter Dragicevich said.
“If they don’t express some concern around volatility, the market could see that as them being more hawkish, but again, if they change tack, the market could say that they’re trying to justify market pricing and that would be more dovish,” Dragicevich added.
Additional reporting by Reuters
POOR INTERNAL CONTROLS: Insurance Bureau Director-General Shih Chiung-hwa said the company is expected to get back on track while its chairman is suspended The Financial Supervisory Commission (FSC) yesterday fined Shin Kong Life Insurance Co (新光人壽) NT$27.6 million (US$939,415) for a reckless investment that endangered its solvency, and suspended its chairman Eugene Wu (吳東進) for poor supervision. The penalty is the second-highest in a single case after Nan Shan Life Insurance Co (南山人壽) was fined NT$30 million in September last year and its chairman Du Ying-tzyong (杜英宗) suspended for two years, the commission said. In three rounds of special and regular examinations conducted since last year, the commission found that Shin Kong Life had given too much power to an asset and liability management committee
Tesla Inc is planning to ship vehicles made at its Shanghai Gigafactory to other markets in Asia and Europe, people familiar with the matter said, as the company looks to realize its plan to reduce shipping costs and manufacture vehicles closer to customers. China-built Tesla Model 3s intended for delivery outside China would likely start mass production in the fourth quarter of the year, the people said, asking not to be identified because the details are private. They said the markets targeted include Singapore, Australia and New Zealand, as well as Europe, where customers currently have to wait for a Tesla to
Nano-X Imaging Ltd, a start-up founded by Israeli investor Ran Poliakine, is joining forces with South Korean chipmaker SK Hynix Inc to build a machine that could disrupt a century-old X-ray industry. Valued at about US$2 billion after listing on the NASDAQ last month, Nano-X is seeking to transform a multibillion-dollar industry that has essentially relied on the same technology since Nobel Prize in Physics winner Wilhelm Roentgen discovered X-rays in the late 19th century. Nano-X’s device uses semiconductors instead of metal filaments to generate X-rays. The backing of SK Hynix, the world’s second-largest maker of memory chips, is a boost for
Continental AG, which makes control units for Daimler AG cars, cannot pursue antitrust claims against a group of patent owners, including Qualcomm Inc, which are seeking royalties on telecommunications technology, a federal judge in Texas ruled. Avanci LLC, a licensing pool formed by Qualcomm, Nokia Oyj, Sharp Corp and other owners of patents on technology standards, is not breaching antitrust laws when it negotiates license agreements with automakers rather than the component makers, Barbara Lynn, chief district judge for the Northern District of Texas, said in dismissing the suit in a decision posted on Friday. The licensing group charges US$15 per vehicle