Fed holds interest rates steady as expected. Fed Chair Janet Yellen said "most policy-makers are anticipating a rate increase this year", but signalled a gradual rise in rates.
Fearing the consequences of continued quantitative easing and the resulting debt burden, Japan’s central bank is letting Prime Minister Shinzo Abe take the lead in reviving the economy.
The dollar touched 125.86 against the yen before pulling back after Bank of Japan Governor Haruhiko Kuroda’s remarks on further depreciation of the currency as well as the Fed’s dovish stance.
30-day rolling correlation between yen/US dollar and yen/Korean won is reverting towards the historical high of 80%-90%.
End of the Road for Yen Slide?
In a widely expected move, US Federal Reserve Chair Janet Yellen held key interest rates steady on 17 June.
The US Federal Reserve said it would raise rates when it had "seen further improvement in the labour market" and was "reasonably confident" that inflation would reach the 2% target in the "medium term".
Any rate hike will be gradual once started.
Following the FOMC decision, the US dollar fell to a low of 122.66 against the yen the next day as dollar bears gained the upper hand.
Prior to the Fed’s decision, the yen was already strengthening after Bank of Japan (BOJ) Governor Haruhiko Kuroda said on 10 June that the currency is unlikely to weaken further in real effective terms.
While the yen’s drop has been good for Japanese corporates, it has posed increasing problems for importers and smaller companies. The weaker yen has failed to spur higher wages, greater consumer spending or even inflation.
With both the US and Japan central banks’ actions dictating dollar/yen movements, the performance of Japanese equities has been influenced by monetary policy.
Propelled by Abenomics, the Nikkei 225 Index hit a 15-year high of 20,655.33, chalking up a 12-day winning streak. Net foreign buying of Japanese equities has exceeded 2 trillion yen so far this year. Since then, the rally has stalled.
For market participants, the Singapore Exchange (SGX) offers the widest suite of Japan-related derivatives to cater to the needs of investors, including Yen Nikkei Futures, USD Nikkei Futures, Mini Nikkei Futures, Nikkei Dividend Futures, Yen Nikkei Options as well as USD/JPY and KRW/JPY FX futures.
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