Nikkei gains as yen falls to 1990 low as China equities decline

In a holiday-shortened week that culminates with crucial data on U.S. inflation, Chinese markets declined and regional equities as a whole lacked direction, while Japanese stocks rose on Wednesday as the yen dropped to its lowest level since 1990.

The Nikkei 225 of Japan (.N225), opened a new tab, closed the day at 40,762.73, up 0.9%, and approached its all-time high of 41,087.75 recorded last Friday.

Before the yen-buying intervention, the Japanese finance minister issued an urgent warning of “decisive action,” a term he had not used since late 2022, when the yen dropped as low as 151.975 to the dollar.

Despite the Bank of Japan’s first interest rate increase in 17 years last week, the yen has been weakening as traders anticipate extremely gradual tightening and potential delays to the widely anticipated Federal Reserve relaxation.

In a dovish assessment of more tightening, BOJ board member Naoki Tamura said on Wednesday that the central bank should “move slowly but steadily toward policy normalization.”

In the meantime, mainland Chinese blue chips (CSI300) dropped around 0.7% in the opening tab and Hong Kong’s Hang Seng (HSI) fell 1%, erasing gains from the previous session.

Overall, the MSCI broadest index of Asia-Pacific equities (.MIAP00000PUS), opens new tab, increased by 0.1%; but, if Japanese shares were excluded, that increased to a 0.17% fall (.MIAPJ0000PUS), opens new tab.

IG analyst Tony Sycamore said, “It’s choppy, directionless trading, and there’s a good reason for that: we’ve hit that time of the quarter when rebalancing flows are impacting the market.”

He also mentioned the fact that two significant events—the public remarks from Fed Chair Jerome Powell and the publication of the U.S. Federal Reserve’s preferred inflation indicator—occur on Friday, a day when most markets are closed for a holiday.

In the case of a high reading, “the bumpy road that the Fed has been talking about suddenly starts to look more like a mountain trek,” according to Sycamore, who said that inflation figures “have not been doing what is expected.”

The U.S. dollar index, which compares the value of the dollar to six important currencies, including the yen, increased by 0.07% to 104.36, placing it slightly behind the five-week high of 104.49 set on Friday.

At 151.65 yen, the dollar was recently 0.06% higher.

The report from Westpac analysts said that “the very accommodative stance of BOJ and data that continue to show the fragility of Japan’s ‘virtuous cycle’ economic recovery underscore the divergence in policy stances” with the Fed.

“If intervention were to occur, resultant flushes in USD/JPY below 150.00 are likely to be seen as buying opportunities.”

At $1.08285, the euro remained unchanged. Pound dropped 0.12% to $1.26175.

The yield on US long-term Treasury bonds was steady at 4.23%.

Traders are attempting to predict which of the three major central banks—the Bank of England, the ECB, or the Fed—will lower interest rates first this year.

Later in the day, the Riksbank of Sweden will make a policy decision. A hold is generally anticipated, but investors are watching for clues that might point to a decrease by June.

U.S. S&P 500 futures increased by 0.32%, while pan-European STOXX 50 futures indicated 0.12% down.

As it continued to look for a short-term floor after surging to a record $2,222.39 on Thursday, gold was barely changed at around $2,179.

Bitcoin, a cryptocurrency, increased by 0.5% to $70,167.

Following news that the United States, the world’s largest oil consumer, has increased its crude stocks, and indications that major producers are unlikely to alter its production strategy at a technical conference next week, crude prices dropped for a second day.

May Brent oil futures fell 74 cents, or 0.9%, to $85.51 a barrel. The June contract, which is traded more often, dropped 68 cents, or 0.8%, to $84.95, while the May contract is scheduled to expire on Thursday.

West Texas Intermediate (WTI) oil futures for delivery in the United States dropped 64 cents, or 0.8%, to $80.98.