Japanese yen firms as JGB yields hit 30-year high

Today’s headlines

What’s happening: The Japanese yen rose against the US dollar this morning, pulling back from levels that previously triggered intervention from Japanese authorities.

What happened: The Japanese currency found support as a sharp rise in Japanese government bond yields (JGB) narrowed the yield gap.

Weakness in the US dollar lent further support to the Japanese currency, despite the benchmark 10-year US Treasury yield remaining elevated above the 5.1% level.

Why it matters: Japan’s 10-year government bond yield jumped to 3.055%, its highest level since 1996, tracking a broader overnight surge in US Treasury yields. The move helped narrow the yield differential that had pressured the Japanese yen over the past two weeks. The Japanese yen moved away from the critical 160 level that had previously driven government intervention.

The Bank of Japan had raised its policy rate by 25bps to 1.25% on September 16, taking its benchmark interest rate to the highest level in over three decades. Markets are still pricing in some expectations of a further hike in October, lending support to the Japanese currency.

Weakness in the US dollar lent further support to the Japanese yen this morning. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.1% to 101.21, after recording sharp gains in the recent period.

The USD/JPY forex pair fell to around 158.48 this morning. Meanwhile, the Nikkei 225 jumped around 1.23% to trade at 66,318.64.

What to watch: Investors await the release of economic data on Industrial Production and Retail Sales from Japan on Wednesday next week. Japan’s industrial production, which declined 0.2% in July, is expected to rise by 0.3% in August. Retail sales in Japan had surged by 2.4% in July, rebounding from a 3.9% decline in the previous month.

Data on durable goods orders (1530 UAE Time) and the final University of Michigan consumer sentiment index (1800 UAE Time) from the US, due to be released today, will also remain in focus.

The markets today

UK stocks in focus today ahead of some key economic reports next week

Context: The FTSE 100 index fell on Thursday as investors assessed the recent economic data.

Details: Data released on Thursday showed that the CBI retail sales balance declined to -55 in September from -48 in the previous month, hitting the lowest level in five months. The latest reading also missed market estimates of -50.

The FTSE 100 closed lower on Thursday, snapping Wednesday’s modest gain, as Brent crude jumped to $107.25 a barrel, while the US 10-year Treasury yield climbed to 5.11%, weighing on rate-sensitive sectors. European peers also closed lower, with the CAC 40 down 0.5% and Germany’s DAX falling 0.6%.

GfK’s Consumer Confidence Barometer, released after Thursday’s close, rose to -13 in September from -14 in August and well above expectations of a decline to -16, marking its highest level since August 2024. The reading had no bearing on Thursday’s session, but the improvement in household sentiment, particularly around personal finances, may offer support to retail and consumer-facing stocks ahead.

The reading follows the Bank of England’s decision last week to hold interest rates at 3.75%. With inflation climbing to 3.1% and expected to rise further, markets expect policymakers to announce a rate hike in the near future.

The FTSE 100 fell by 25.27 points, or 0.24%, to close at 10,679.99 on Thursday, snapping Wednesday’s modest gain.

What to watch: With no economic reports scheduled from the UK today, investors await data on Current Account and GDP Growth Rate, due to be released next week. The UK’s current account deficit, which shrank to £22.1 billion in the first quarter from £27.2 billion in the previous quarter, is expected to widen to £23 billion in the second quarter.

Analysts expect the UK economy to grow by 1.2% year-over-year in the second quarter, accelerating from 0.9% in the previous quarter.

Other Markets: US stock indices closed mixed on Thursday, with the Dow Jones index and S&P 500 down by 0.31% and 0.02%, respectively, and the Nasdaq up by 0.01%.

The news shaping the markets

While addressing the United Nations General Assembly, Ukraine’s President Volodymyr Zelenskyy urged world leaders to sustain economic pressure on Russia. The news sent the USD/RUB forex pair higher in forex trading this morning.

Hong Kong’s trade deficit widened to $71.2 billion in August from $25.4 billion in the year-ago month. This being the largest trade gap since March lent support to the USD/HKD forex pair.

Saudi Arabia’s trade surplus narrowed to SAR 14.4 billion in July from SAR 19.1 billion in the year-ago month, which sent the USD/SAR pair slightly higher in forex trading this morning.

Canada’s average weekly earnings rose 3.2% year-over-year to C$1,347 in July, easing from a 3.4% gain in the previous month, which exerted pressure on the USD/CAD forex pair.

Germany’s Ifo business climate index climbed to 89.9 in September, recording the highest reading since May 2023. Despite the reading topping market estimates of 89.0, the EUR/USD pair fell in forex trading this morning.

What else to watch today

• Eurozone’s Loans to Companies (1200 UAE Time)
• Eurozone’s Loans to Households (1200 UAE Time)
• India’s Foreign Exchange Reserves (1530 UAE Time)
• Canada’s Wholesale Sales (1630 UAE Time)
• Canada’s Budget Balance (1900 UAE Time)
• US Baker Hughes Oil Rig Count (2100 UAE Time)
• US Baker Hughes Total Rigs Count (2100 UAE Time)