This week, concerns about recession have become a market theme worldwide. The series of PMIs announced last weekend caused an unexpected drop in Europe and the United States. For Europe, EU countries have agreed to reduce gas use by 15% this winter following a significant cut in Russia’s gas supply to Germany. It was also reported that the outlook for the Italian bond rating would be lowered due to political unrest in Italy. The situation is negative for the European economy.
Also in the United States, the sharp drop in service industry PMI last weekend confirmed the 0.75% outlook for this week’s US FOMC. The buds of the 1.00% rate hike are plucked. The US FOMC announced a 0.75% rate hike as expected. At the Fed Chairman Jerome Powell’s meeting, the market responded to the dollar sale by saying, “It is appropriate to curb rate hikes at some point.” And yesterday’s US GDP preliminary figures (second quarter) showed unexpected negative growth. The sharp drop in housing investment was hit. The background is that rising long-term interest rates, along with rising construction costs due to soaring energy prices and labor shortages, led to higher mortgage interest rates. Following the technical recession, the market is observing a 0.5% rate hike at the next FOMC in September.
Under these circumstances, the dollar-yen exchange rate this week plummeted from the 137-yen level to the 132-yen level. The dollar-buying and yen-selling gears based on the scenario of widening interest rate differentials between Japan and the United States will rotate in the opposite direction. Even in the overseas markets after this, there seems to be no strong material that will return the reverse rotation. We will determine the whereabouts of the yen’s appreciation.
Today is the end of the month, so it seems that there are a lot of rebalanced USD selling and JPY buying. It is assumed that this trend will continue tonight.
