This year has started with a weakening yen trend. In addition to this, there is also pressure for a stronger US dollar. In the latter half of last year, there was a shift from expectations of central bank rate hikes to anticipations of early rate cuts this year. However, it is important to note that these are still speculations, and there is a concern that the financial markets are overestimating the likelihood of rate cuts.
ECB President Lagarde hinted at the possibility of rate cuts starting this summer, but this was likely meant to counter the speculations of early rate cuts in March and other similar speculations. The basic stance of central banks remains “data-dependent,” and no clear guidance has been provided.
In the UK, the pound has been volatile due to discrepancies between wage and inflation indicators’ expectations. However, expectations for the size of rate cuts this year have reduced from over 150 basis points (bps) at the end of last year to the 110s bps at present.
Expectations of narrowing interest rate differentials between Japan and the US, as well as between Japan and Europe or Japan and the UK, have contributed to the current yen weakening trend.
In this context, concerns are growing over the escalation of tensions in the Middle East, including developments around the Red Sea and minor conflicts between Iran and Pakistan. The ongoing Ukraine conflict also adds to market uncertainties. With the correction of over-speculated rate cut expectations and other factors, the stock markets are gradually becoming more unstable.
The USD/JPY exchange rate has steadily approached the 150 yen mark. However, in recent years, there has been resistance around the 152 yen level. Short-term adjustments in the yen weakening trend should be anticipated.
In the near term, it will be essential to monitor economic indicators such as Hong Kong employment statistics, the Eurozone current account balance, US housing starts and building permits, US initial jobless claims, and the Philadelphia Fed Manufacturing Index.
Notable speeches and events include those by Thomas Jordan, President of the Swiss National Bank, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, and Christine Lagarde, President of the ECB. Additionally, the US weekly petroleum inventory report will be released, and there will be an auction of US 10-year inflation-linked bonds (TIPS).
This week, despite the recent remarks by US officials causing the US dollar to strengthen, these statements can quickly reverse. Therefore, it is important to be skeptical about the direction of the US dollar. However, the trend of a weaker yen is expected to have a higher degree of certainty. This week, the plan is to continue the strategy of selling the Japanese yen. We will also pay attention to the market reaction after the release of the University of Michigan Consumer Sentiment Index.