He said in the Japanese parliament that the real (inflation-adjusted and trade-weighted) JPY exchange rate was already very weak and the JPY had returned to levels seen before the Lehman Brothers collapse in 2008.
Kuroda-san’s remarks are the latest in a series of Japanese officials (or former officials) rhetoric that the Yen may have weakened too excessively.
A former official at the Finance Ministry, Hiroshi Watanabe, commented that the JPY is unlikely to depreciate to 130 per dollar this year, even if the US Fed hikes rate.
The pullback in USD/JPY was substantial, with prices falling through 123 to test 122.50, tumbling over 1%. The last time concerns about the rapid depreciation of the Yen was mentioned, the JPY real effective exchange rate (REER) was at an all-time low, based on the Westpac REER trade-weighted JPY index.
The Yen subsequently had a 6% rally over the following two-month period. Now, the JPY REER is at a new record low at 70.4.
The resultant selloff in dollar was more broad-based, with the greenback declining against the major currencies. EUR/USD spiked towards 1.14; AUD/USD and NZD/USD leaped towards 0.78 and 0.7250 respectively.
Hong Kong stocks tumble
The Hang Seng Index (HSI) broke below key support of 27,000 today, touching a two-month low of 26573.96. Although the HSI did not close the two price gaps seen on 8 and 9 April 2015, the sub-index, HSI Commerce and Industry (Comprises 24 out of the 50 constituents) had filled the two gaps.
Declines in the HSI was attributed to a big fall in H-shares after MSCI deferred the inclusion of A-shares into its indices. Traders liquidated long positions in big H-shares such as Bank of China (3988 HK), and China Construction Bank Corp (939 HK), which widened the AH gap further to 42.5%. We also saw the China A50 plumbing lower.
A resurgent STI, sort of.
Despite the reversal in Noble shares today, the Straits Times Index regained the 3300 handle. While short-term indicators stayed on the bearish side, we could see some consolidation as well as attempts to rebound.
Equity market internals continue to deteriorate but it may be interesting to look at the short-term 20-day moving average. Since 2014, whenever the proportion of STI constituents who are trading above the 20-day moving average falls below 20%, buyers tend to come back into the market.
This would correspond with the strong support at 3300, so it may not be a surprise to see a technical bounce from here, even if the macro background does not necessarily back the move.