Yen Climbs to 15-Month High, Hitting Japan Stocks: Markets Wrap

(Bloomberg) -- The yen climbed to a 15-month high as traders probed Japanese officials’ tolerance for appreciation, hurting the nation’s stocks in what was otherwise a mixed session for Asian equities Wednesday ahead of a key U.S. inflation report.

Treasuries also advanced, along with gold, giving the moves the flavor of a shift to havens. Futures on the S&P 500 Index were little changed, as was the MSCI Asia Pacific Index of stocks. Shares rose in Hong Kong and Seoul, and fluctuated in Shanghai before a week-long Lunar New Year holiday. Volatility lingered, albeit down from the extremely elevated levels reached last week.

Japan’s currency climbed to its strongest since November 2016, when the yen was sold off as investors anticipated U.S. fiscal stimulus would boost American interest rates. Japanese officials have offered muted expressions of concern at this point, with Chief Cabinet Secretary Yoshihide Suga saying Wednesday morning simply that the Abe administration will continue to watch market moves and that it’s very important to have a stable currency.

While U.S. equities are recouping some of the $2 trillion wiped out in the rout last week, Japanese stocks are 10 percent below their January highs, with the Topix index trading at a four-month low. GMO’s James Montier said U.S. stocks were "obscenely overvalued," citing the Shiller price-earnings ratio, which shows that U.S. stocks are at the second-most-expensive level ever, topped only by the technology bubble of the late 1990s. He also referenced a recent Bank of America Merrill Lynch (NYSE:BAC) survey showing the highest level ever of fund managers saying the market suffers from “excessive valuation.”

American consumer-price data due Wednesday could give some clues on where markets are heading, with investors assessing the outlook for inflation and what it means for the trajectory of U.S. monetary policy. New Chairman Jerome Powell suggested the Federal Reserve would forge ahead with gradual rate increases even as it keeps an eye on financial system risks following the recent equity rout.

Terminal users can read more in our markets blog.

Here are some important things to watch out for this week:

• The Bank of Thailand will probably hold its benchmark rate at 1.5 percent on Wednesday, according to economists surveyed. Inflation, already below the target range, is slowing further on the stronger baht.
• Lunar new year celebrations for the Year of the Dog begin, affecting China, Hong Kong, Taiwan, Singapore, Malaysia and Indonesia. Chinese mainland markets are closed Feb. 15-21.
• The U.S. consumer-price index probably increased at a moderate pace in January, economists project. Retail sales in the U.S., also out Wednesday, probably increased for a fifth straight month.
• Earnings season continues in full swing with reports including companies from Bunge to Nestle.

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These are the main moves in markets:

Stocks

• Japan’s Topix index lost 0.7 percent at the midday break in Tokyo, while the Nikkei 225 Stock Average fell 0.6 percent.
• Australia’s S&P/ASX 200 Index declined 0.4 percent. The Kospi index rose 0.6 percent.
• Hong Kong’s Hang Seng Index rose 0.6 percent and the Shanghai Composite Index fell 0.4 percent.
• S&P 500 futures rose less than 0.1 percent.
• The MSCI Asia Pacific Index was little changed.

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 percent.
• The yen climbed 0.6 to 107.15 per dollar.
• The euro traded at $1.2383, up 0.3 percent.

Bonds

• The yield on 10-year Treasuries fell more than one basis point, to 2.81 percent.
• Australia’s 10-year yield fell almost three basis points to 2.85 percent.

Commodities

• West Texas Intermediate crude was little changed at $59.18 a barrel.
• Gold rose 0.4 percent to $1,335.03 an ounce, up for a third day.