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Japan Signals Readiness to Stem Yen Gains

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Haruhiko Kuroda

Japan’s chief cabinet secretary has signaled Tokyo’s readiness to intervene in the market if the yen spikes out of line with fundamentals and defended the Bank of Japan’s negative interest rate policy.

Yoshihide Suga, one of premier Shinzo Abe’s closest aides, told Reuters in an interview on Tuesday the government will respond “appropriately” to unwelcome yen gains that hurt growth.

He also stressed the need to respect the BOJ’s independence from political interference, a sign the government will not get in the way if the bank opts to deepen negative rates to stimulate the economy.

Suga’s comments come as Japan struggles to get on a solid growth track. Its economy ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest, as weak global growth and the yen’s 20 percent rise against the dollar this year have hurt exports and capital spending.

He said yen moves were a key debate topic at a regular meeting he created that gathers senior officials from the Ministry of Finance, the Financial Services Agency and the BOJ.

“Through the meetings, the government will closely watch market moves and respond appropriately,” the top government spokesman said, when asked whether Tokyo could intervene in the market if the yen spikes abruptly.

In a prepared speech later at a Reuters newsmaker event, Suga stressed the government’s resolve to respond “decisively” to excessive market moves.

The comments suggest Tokyo is not letting its guard down against the risk of a renewed yen spike, even as recent hawkish messages from U.S. Federal Reserve officials push up the dollar to around 102 yen, off lows below 100 hit this month.

POLICY COORDINATION INTACT

Japanese officials have repeatedly threatened currency intervention to deal with their headache of a strong yen. But they have held off for fear of infuriating Washington, which has warned against intervention that could be seen as seeking to give Japanese companies an unfair competitive advantage.

The BOJ’s decision in January to adopt negative interest rates has failed to arrest yen gains and drawn market criticism for hurting financial institutions’ profits.

Under pressure from Abe’s administration, the BOJ eased last month by expanding purchases of exchange-traded funds (ETF). A majority of economists expect the bank to act again next month.

Asked if the BOJ had room to cut rates further, Suga said negative rates and any other steps the BOJ takes would give financial institutions “huge” benefits if they boost the economy.

On whether Japan could resort to “helicopter money”, or direct central bank underwriting of government debt, Suga said there was no clear definition of what helicopter meant.

He added it was important for the government and the BOJ to work closely together to beat deflation.

“The BOJ will conduct a review of its policies to achieve its 2 percent target. In any case, it’s important not to impair fiscal policy and the BOJ’s independence,” he said.

In a case of coordination last month, the government announced a spending package shortly after the BOJ eased policy, Suga said.

“I’m confident that we will see results if the government and the BOJ coordinate policies,” he said.

Data released on Tuesday showed household spending remained stubbornly weak in July even as the jobless rate hit a 21-year low.

(Additional reporting by Mayu Yoshida, William Mallard and Tetsushi Kajimoto; Editing by Richard Borsuk)

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Dollar

U.S. Dollar Pulls Back on Thursday After Hiting a 20-Year High

The United States Dollar pulled back slightly on Thursday after hiting a 20-year high on the back of rising interest rates and global demand for haven currencies.

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U.S dollar - Investors King

The United States Dollar pulled back slightly on Thursday after hitting a 20-year high on the back of rising interest rates and global demand for haven currencies.

The dollar index rose to 107.05 in the previous session, the highest in 20 years before pulling back to 106.57 at 11:07 am Nigerian time.

Against the Euro common currency, the U.S. Dollar gave back some of its gains on Thursday to trade at 1.0213, up from 1.0173 attained after dropping below 1.0350 support levels.

Similarly, the greenback pared gains against the British Pound to 1.2009 despite over 40 British lawmakers resigning their positions and calling for the resignation of Prime Minister Boris Johnson enmeshed in a series of scandals.

The value of the United States Dollar rose in recent weeks after it became clear that the Federal Reserve won’t be halting its rate increase anytime soon. The surge in demand for the United States Dollar was to avoid paying excessive borrowing costs going forward and also to ensure cash availability going into recession, known cash is king.

The Federal Reserve is expected to raise borrowing costs by another 50 basis points to 75 basis points in the month of July as it continues to battle 40 years high inflation rate of 8.6%.

This persistent increase in borrowing costs is expected to weigh on new job creation, new investment, earnings, and subsequently, drag on consumer spending that over the years has sustained the world’s largest economy.

Overseas orders will start waning American goods become more expensive to holders of foreign currencies. This, Investors King predicted would hurt manufacturing activity.

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Pound

British Pound Extends Decline as 44 British Lawmakers Resigns

British Pound sustained its decline against the United States Dollar and other global counterparts on Wednesday after five additional British lawmakers resigned their positions in protest against a series of scandals rocking the House of Commons in recent weeks.

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British pound

British Pound sustained its decline against the United States Dollar and other global counterparts on Wednesday after five additional British lawmakers resigned their positions in protest against a series of scandals rocking the House of Commons in recent weeks.

A total of 44 British lawmakers have resigned under Prime Minister Boris Johnson’s leadership, accusing the Prime Minister of engaging in or condoning actions that put parliament moral in question.

Against the American Dollar, Great Britain Pounds (GBP) dropped from 1.2164 it peaked on Monday to 1.1934 in the early hours of Thursday.

While against the Japanese Yen, one of the world’s safe-haven currencies, GBP exchanged at 162.02, down from 165.26 it traded on Tuesday.

The decline was broad-based as the embattled GBP also lost some ground against the Swiss Franc to exchange at 1.1568, down from about 1.1687 on Tuesday.

On Wednesday,  five lawmakers signed in one go. In their letter, they said “It has become increasingly clear that the Government cannot function given the issues that have come to light and the way in which they have been handled,” they wrote.

Selaine Saxby, Claire Coutinho and David Johnston were the latest lawmakers to tender their resignation on Wednesday.

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Naira

Naira Plunges to N621 at Black Market

The Nigerian Naira remained under pressure at the unregulated parallel market popularly known as the black market on Tuesday.

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Naira - Investors King

The Nigerian Naira remained under pressure at the unregulated parallel market popularly known as the black market on Tuesday. The Naira exchanged at N621 to a United States Dollar amid persistent foreign exchange scarcity.

At the Investors and Exporters’ forex window, the local currency dropped to N425.75 against the United States Dollar after opening the day at N422.25/US$1 on Monday. Forex traders in that segment of the forex market transacted $47.56 million in value and volume, Investors King reports.

However, Naira improved slightly against the U.S Dollar at the Central Bank of Nigeria (CBN) forex section. Naira exchange rate to dollar improved marginally from N415.86/US$ to N415.8.

Against the Pounds Sterling, the Nigerian Naira declined in value to N505.6544 from N500.6539. Similarly, against the European common currency, the local currency dipped slightly in value from N434.0331 to N434.7605.

Crude Oil

Oil prices dropped by $6 on Tuesday as concerns over the global recession containing demand outweighed supply concerns.

Brent crude oil, the international benchmark for Nigerian oil, declined by $6.65 to $106.85 a barrel while the U.S. West Texas Crude Oil lost $5.65 to $102.78 a barrel.

“Oil is still struggling to break out from its current recessionary malaise as the market pivots away from inflation to economic despair,” Stephen Innes of SPI Asset Management wrote.

Crude oil remains an important commodity for the Nigerian economy given its nature as a mono-product economy. Africa’s largest economy relies on crude oil revenue to service its economy and sustain its currency value against its global counterparts.

However, the inability to prop up crude oil production despite the increase in oil prices continued to hurt Nigeria’s foreign reserves and the availability of dollars in the economy. Hence, the Nigerian Naira is presently trading at a record low of N621 to a United States Dollar.

Cryptocurrency Exchange Rates

Global economic uncertainty ahead of the projected recession continues to dictate the performance of the cryptocurrency space in recent weeks.

Bitcoin extended its decline by 2.37% in the last 24 hours to $19,387.33 per coin. ETH, a token of the Ethereum protocol, lost 3.09% of its value to $1,079 a coin.

Meanwhile, Meta, formerly known as Facebook, has suspended its cryptocurrency project called Libra.  Celsius, a cryptocurrency lender, has paused withdrawals and announced plans to cut 150 jobs.

Cryptocurrency space market value dropped from over $2.5 trillion at its peak to about $900 million presently. The huge decline forced several players to cut losses and halt capital inflow into the cryptocurrency space.

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