Japanese Shares Eye Early Slump After Yen Surge
The Japanese stock market is bracing for a slump in early trading after the yen surged to its highest level in more than two years. The benchmark Nikkei 225 index is expected to open lower on Monday, with the yen’s appreciation weighing on exporters.
The yen rose to its highest level since October 2018 on Friday, as investors sought safety amid rising tensions between the United States and China. The Japanese currency is seen as a safe haven in times of geopolitical uncertainty, and its appreciation makes Japanese exports less competitive.
Yen’s Appreciation Weighs on Exporters
The yen’s appreciation has been a major headwind for Japanese exporters, who have seen their profits squeezed by the currency’s strength. The Nikkei 225 index has fallen more than 10% since the start of the year, as the yen has gained more than 5% against the dollar.
The yen’s appreciation has been particularly damaging for automakers, which have seen their profits hit by the currency’s strength. Toyota, Honda, and Nissan have all reported lower profits in the past year, as the yen has gained against the dollar.
U.S.-China Tensions Impacting Markets
The yen’s appreciation has been driven by rising tensions between the United States and China. The two countries have been locked in a trade war for more than a year, and the situation has been further complicated by the recent passage of a controversial national security law in Hong Kong.
The U.S. has threatened to impose sanctions on China if the law is not repealed, and investors are concerned that the situation could escalate further. The uncertainty has weighed on global markets, with the Nikkei 225 index falling more than 4% last week.
Japanese Economy Struggling
The Japanese economy has been struggling in recent months, as the country has been hit by the coronavirus pandemic. The government has implemented a series of stimulus measures to support the economy, but the measures have yet to have a significant impact.
The Bank of Japan has also taken steps to support the economy, cutting interest rates to a record low and expanding its asset purchase program. The central bank is expected to continue its accommodative stance in the coming months, as the economy struggles to recover from the pandemic.
Outlook for Japanese Markets
The outlook for the Japanese stock market remains uncertain, as the yen’s appreciation continues to weigh on exporters. The U.S.-China trade war and the coronavirus pandemic are also likely to continue to impact the market in the near term.
In the longer term, the Japanese economy is expected to recover as the government’s stimulus measures take effect. The Bank of Japan is also likely to continue its accommodative stance, which should help to support the economy and the stock market.