New-Japan Business Consulting
Business strategy reports, business matching and M&A in Japan


Month-end rebalancing and the PCE Core Deflator

The release of the PCE Core Deflator was important at 21.30 last weekend.

The forecast was +0.3% month-on-month and +2.8% year-on-year, but the result was 0.2%. the Fed’s most important inflation indicator, but in many cases the figures are almost as expected. This time, however, the figures were worse than market expectations, which led to a sell-off in the dollar and a rough market that reversed the previously buying trend. The rebalancing at the end of the month was also expected to be a general sell-off of the dollar, reflecting the strong performance of US equities, and this spurred further dollar selling.

However, although the dollar has been sold since yesterday, it appears to have lightly bottomed out and is likely to test the stronger dollar direction if it does not break firmly below 156.50 yen. The amount of intervention by the Ministry of Finance was announced, and the figure was almost in line with media expectations.

As for the Bank of Japan, the dollar fell sharply from around 157.20 yen to around 156.90 yen at the moment when Deputy Director Adachi said that the Bank would consider the impact of the weaker yen and an upward swing in the long-term expected inflation rate. However, it has since been gradually bought back.

Japan 10-year interest rate to 1.04%

Japanese long-term interest rates are slowly rising to the 1.04% level, partly due to a speech by Deputy Governor Uchida. The fact that the rate is now above 1.00%, which was the level of unrestricted intervention not so long ago, will bring about a certain amount of demand for buying the yen. The impact on the exchange rate is limited so far. The difference between the US and Japanese interest rates is so large that a change of around 0.1% would have little impact (but negative for the stock market).

With the market approaching the level of the second market intervention, it feels difficult to go long or short. Also, there is a BoJ policy meeting in the middle of next month and there are expectations of a change in policy. The market will continue to be application quality.