Friday morning in Asia, the yen extended its yesterday's uptrend against other major currencies as a global stock market sell-off triggered large scale unwinding of carry trade positions. In carry trade, investors borrow money from Japan where the interest rate is low to buy high yielding assets in other countries. So, an unwinding of carry trades results in traders liquidating their investments and scrambling for yen to repay their yen-denominated loans, which pushes up the value of the Japanese currency.
The yen strengthened to a 10-day high against the pound and the franc and a 1-week high against the dollar, the euro, the kiwi, the aussie and the loonie.
The Japanese stock market was trading sharply lower for the second consecutive session today after U.S. stocks tumbled overnight on mounting recession fears. Investor confidence also eroded after automaker Toyota slashed its full-year earnings forecast by more than half, while a stronger yen dragged down exporters.
At 7.22 pm ET, the benchmark Nikkei 225 Index was losing 445.86 points or 5.01% to 8,453.28 and the broader Topix Index of all First Section Issues was down 48.12 points to 861.18.
Commodity prices fell sharply along with stock markets after another raft of U.S. data provided further evidence of a looming recession in the world's largest economy. Those concerns led jittery investors to unwind leveraged carry trades.
Oil tumbled nearly 7 percent yesterday on expectations that demand would slow further after the International Monetary Fund predicted developed economies would deliver their worst performance since World War II. Light, sweet crude for December delivery fell 7% or $4.53 to settle at $60.77 a barrel on the New York Mercantile Exchange. Oil prices have now fallen nearly 60% since peaking at $147.27 a barrel in mid-July. In the Asian session today, oil is currently down $0.58 at $60.19 a barrel.
The International Monetary Fund cut its 2009 global economic growth to 2.2 percent, from 3 percent forecast in October. It expects the U.S. economy to contract by 0.7 percent next year, while the euro zone is expected to shrink by 0.5 percent, hurt by the financial market turmoil
The Bank of Japan Governor Masaaki Shirakawa said yesterday that the ongoing global financial crisis and the economic slowdown could be viewed as part of the process of corrective imbalances that have accumulated.
He was speaking at the Kisaragi-kai Meeting in Tokyo, his first speech after the central bank cut interest rates last week. On October 31, the Japanese central bank had lowered the base rate by 20 basis points to 0.3% in a bid to avoid recession in the world's second largest economy. This was the first rate cut in seven years.
According to the central bank chief, it is important to pay attention to downside risks for the Japanese economy in the near term, particularly developments in the U.S. and European financial systems and the global financial markets.
He cited two major reasons for the slowdown in the Japanese economic growth. First is the sharp deterioration in the terms of trade due to high energy and material prices. The second reason is the sluggishness in overseas economies.
The central bank chief noted that the future of Japan's economy relies heavily on the recovery of overseas economies and also on the stability of global financial markets. He said the most likely outlook is that increased sluggishness in Japan's economic activity will remain over the next several quarters in the near term.
The yen that closed yesterday's trading at 97.72 against the dollar rose to a 1-week high of 96.77 during early Asian deals on Friday. On the upside, 96.4 is seen as the next target level for the Japanese currency.
The yen jumped to a 13-year high of 90.93 against the dollar on October 24. But the Japanese currency pared its gains thereafter and lost 10% to hit a 2-week low of 100.56 on November 4. Since then, the yen has been in an upward channel and gained 4% to reach a 1-week high today.
In early Asian trading on Friday, the yen edged up against the currencies of Europe and UK. At about 8:20 pm ET, the yen reached a 1-week high of 122.49 against the euro and a 10-day high of 150.38 against the pound, compared to Thursday's close of 124.31 and 152.77, respectively. If the yen gains further, it may find resistance around 114.4 against the euro and 140.7 against the UK currency.
The euro, pound and the franc are under heavy pressure as the central banks of Europe, UK and Switzerland lowered their interest rates yesterday.
The Bank of England reduced its key interest rate by a bigger-than-expected 1.5 percentage points to alleviate the mounting pressures on economy. At the end of its two-day meeting, the Monetary Policy Committee decided to slash the official Bank Rate paid on commercial bank reserves to 3% from 4.5%. Economists had expected the BoE to cut the rate by 50-100 basis points.
The central bank has not cut the rate by more than 50 basis points since 1993. This is the lowest rate since 1955 and the single largest cut since the central bank gained independence in 1997. This is also the largest reduction since 1981, when the benchmark minimum lending rate was cut to 12% from 14%.
The European Central Bank slashed its key interest by 50 basis points to support the 15-nation economy, which is on the verge of a recession. The Governing Council lowered the key-lending rate, which is the minimum bid rate on the main refinancing operations, by 50 basis points to 3.25%, as expected. The interest rate on the marginal lending facility was reduced to 3.75% and the interest rate on the deposit facility was cut to 2.75%. Economists foresee further rate cuts by mid 2009.
Following the rate cut announcement, the European Central Bank President Jean-Claude Trichet struck an uncharacteristically dovish pose in Frankfurt, suggesting that dropping commodity prices and diminishing demand will lead to price stability for the Euro area in 2009.
"The outlook for price stability has improved further," stated Trichet. "Price, costs, and wage pressures in Euro area should continue to moderate."
Trichet's comments left the door open for further rate cuts moving forward as the European policy makers grapple with the stark reality that the world is on the verge of a deep, prolonged recession.
Against the Swiss franc, the yen climbed to 82.06 in early Asian deals on Friday. This set the highest point for the yen since October 28. The next upside target level for the Japanese yen is seen at 79. The franc-yen pair was worth 82.98 at yesterday's North American session close.
Yesterday, the Swiss National Bank said it was lowering the three-month Libor target range by 50 basis points to 1.5%-2.5% with immediate effect. This translates to a reduction in interest rate to 2% from 2.5%, the second rate cut in a span of one month. The central bank said it intends to hold the rate in the middle of the target range for the time being.
The latest interest rate move was out of schedule and was the biggest reduction since March 2003. The central bank was not scheduled to announce a rate decision until December.
During early Asian deals on Friday, the yen jumped to a 1-week high against the commodity related currencies, namely the kiwi, the aussie and the loonie. At about 8:20 pm ET, the yen advanced to 56.11 against the kiwi, 80.59 against the loonie and 63.40 against the aussie, compared to yesterday's close of 57.32, 81.58 and 64.97, respectively. If the yen moves up further, it is likely to target 55.7 against the kiwi, 78.2 against the Canadian dollar and 55.7 against the aussie.
Investors now look forward to the busy European session, in which the Swiss unemployment rate, French trade balance, German trade balance and industrial production reports are slated for release.
Across the Atlantic, the week ends on a busy note with the release of U.S. and Canadian employment reports.
In the U.S., nonfarm payrolls are expected to decline by 200,000 jobs, following September's decline of 159,000 jobs. The unemployment rate is also expected to increase to 6.3% following September's rate of 6.1%.
Later in the morning, the U.S. Department of Commerce will release wholesale inventories for September. Meanwhile, housing data will be of interest to markets, as the National Association of Realtors releases U.S. Pending Home Sales for September. The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 pm ET on Friday.
Meanwhile, Atlanta Federal Reserve President Dennis Lockhart will speak on the economic outlook in Palm Beach.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.