U.S. markets closed, yen climbs to its highest since May against the U.S. dollar
Shares firmed on Monday as optimism over corporate earnings and China’s reopening offset concerns the Bank of Japan might temper its super-sized stimulus policy at a pivotal meeting this week, while a holiday in U.S. markets made for thin trading.
Britain’s benchmark FTSE index edged close to the record high of 7903.50 it hit in 2018, with banks and life insurance companies among the top gainers. The BOJ’s official two-day meeting ends on Wednesday and speculation is rife it will make changes to its yield curve control policy given the market has pushed 10-year yields above its new ceiling of 0.5%.
“There is still some possibility that market pressure will force the BOJ to further adjust or exit the YCC,” JPMorgan analysts said in a note. “We can’t ignore this possibility, but at this stage we do not consider it a main scenario.” The Japanese yen rose to a more than seven-month peak against the dollar on Monday, as market sentiment was dominated by expectations that the BOJ would make further tweaks to, or fully abandon, its yield control policy.The dollar index, which measures the U.S. unit against a basket of major currencies, recovered from a 7-month low touched earlier in the session to be at 102.6.
Alan Ruskin, global head of G10 FX Strategy at Deutsche Securities, said the loosening of global supply bottlenecks in recent months was proving to be a disinflationary shock, which increases the chance of a soft landing for the U.S. economy. “The lower inflation itself encourages a soft landing through real wage gains, by allowing the Fed to more readily pause and encouraging a better behaved bond market, with favorable spillovers to financial conditions,” Ruskin said.
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