On Friday (December 8th), the Japanese stock market was volatile, with the Nikkei Index expected to record its largest weekly decline in a year, while bonds suffered a heavy blow. The Japanese yen is expected to record its largest weekly increase in five months as investors withdrew from their bets on keeping Japanese interest rates low.
Morgan Stanley Capital International (MSCI), the most widely used Asia Pacific stock index outside of Japan, rebounded 0.8%, while US Treasury bonds fell slightly. The Nikkei Index fell 1.8% on the same day, with a weekly decline of 3.6%, with export stocks such as automakers experiencing the largest decline.
The trend of other stocks was relatively mild as traders waited for the US employment data to be released later today.
Due to bearish concerns that the long-awaited rebound may finally begin, the yen jumped more than 2% on Thursday and received good support on Friday.
The Japanese yen hit a four month high of 141.6 against the US dollar on Thursday and remained stable at 144 on Friday, with a cumulative increase of about 5% over the past three weeks.
"This direction is not surprising," said Bart Wakabayashi, manager of State Street Bank's Tokyo branch, "but this move and its speed exceeded my expectations."
In the past year, the Bank of Japan has twice expanded the tolerance range for 10-year bond yields and then relaxed this range. Bank of Japan Governor Kazuo Ueda said on Thursday that the coming year is "more challenging", and traders believe this is a signal of impending change. The Bank of Japan will determine the policy interest rate on December 19th.
"The importance of the December 18-19 meeting has increased, and we believe it is reasonable to refer to the December meeting as a 'live meeting'," Nomura analysts said in a report.
The Japanese bond market still faces pressure, with the yield curve rising and short-term bonds moving towards their largest weekly sell-off since the outbreak of the pandemic in March 2020.
Data shows that Japan's economy declined faster than initially estimated in the third quarter, because the household sector faced more severe adverse factors, which made the prospect of the central bank more complicated, and prompted the yen to give up its gains and the Japanese treasury bond bonds to reverse their losses.
Non farm invasion
In the broader market, the focus is on whether non farm payroll data will reflect signs of a slowdown in the job market, as the number of initial jobless claims in the United States meets expectations.
Economists predict that the number of new jobs added last month was 180000. If traders reduce their bets on the Federal Reserve's interest rate cut of over 125 basis points next year, the unexpected increase may trigger a strong reaction.
"If the Federal Reserve wants to cut interest rates significantly, it will be due to a significant decrease in inflation caused by economic recession and unemployment. The NFP (Non farm Employment) indicates that we are still far from reaching these levels," said Bob Savage, head of market strategy and insights at Bank of Mellon in New York
In terms of foreign exchange trading, the sharp rise of the Japanese yen will stabilize the US dollar index at 103.62 this week. The euro fell to $1.0785 against the US dollar this week.
Affected by economic slowdown and traders believing that the Federal Reserve of Australia is shifting towards a dovish direction, the Australian dollar is expected to end its three consecutive weeks of upward momentum this week, falling 0.9% to $0.6613.
Brent crude oil futures hit a five month low on Thursday and then rebounded slightly to $75.17 per barrel in Asian trading. This week, oil prices will fall by 4.6%.
The gold price has fallen slightly after hitting a record high earlier this week and is currently stable at $2030 per ounce.
