Early this morning Bank of Japan Governor Haruhiko Kuroda said that it’s difficult to see the yen’s real effective rate falling further – and the currency instantly headed towards its biggest gain against the dollar this year. After hitting its lowest point since June 2002 after last week’s strong US jobs data, the Japanese currency has hit its highest point since May 27. The yen rose more than 1 percent to 122.89 to the dollar, just days after reaching its 13 year low of 125.86 on June 5th.
In Japan today Bank of Japan board member Takehiro Sato warned that the central bank’s large stimulus program could cause lower returns and a significant downside if it’s maintained for too long. Japan currently shoulders the heaviest public debt in the world, and the country’s government is now focused on creating a fiscal plan which will bring the country’s budget to surplus by the 2020 fiscal year.
Global Market Overview
In Australia on Wednesday the central bank said that it was “open to the possibility” of more interest rate cuts if necessary, though it cautioned that this policy might have risks as households are already burdened with substantial debt. In response to this announcement the Australian dollar slumped to $0.7650. Interest rates in the region were cut to record lows of 2 percent in May.
On Tuesday European shares hit 3 ½ month lows as worries mounted that US rate hikes are coming soon. "We have had a pickup in some of the U.S. economic indicators and this development tends to go hand in hand with increasing rate hikes fears," said Robert Parkes, equity strategist at HSBC Global Research. Investors are also keeping a close eye on Greece and its creditors as the clock is running out in which a deal must be struck to keep the country in the euro.