Japanese stocks rally on weaker yen

Wednesday, May 27, 2015

Japan’s TOPIX index closed higher for the ninth straight session during overnight trading as it pushed to its highest level since October 2007. Having posted four straight months of gains the index is on track to add a fifth as a combination of central bank support and a weaker yen provide significant support to exporters. Japanese benchmark stock indices have risen as much as 18% so far this year and while stocks have built on the strong gains that have compounded over the past few years the persistent yen weakness will offer exporters a further boost.

After trading rangebound throughout March, April and the first half of May the Japanese yen staged a breakout yesterday, losing 1.2% against the dollar as it traded towards a fresh seven and a half year high. Trading activity had largely held between 118.50 and 121.50 against the dollar but dollar momentum had been gathering pace over the past few sessions after the recent rout, prompting the yen to trade towards 123.32 to the USD on Tuesday. Activity during overnight trading and early this morning has seen the yen pull back slightly trading just below 123.00 but could quickly swing higher on additional dollar strength this week provided US data impresses.

US equites experienced their steepest sell-off in three weeks as a stronger dollar and mixed macroeconomic data releases yesterday saw the S&P 500 and DJIA erase 1% apiece. The dollar index rallied 0.9% against a basket of major currencies yesterday, building on support around the previous session’s close and reaching a fresh one month high as investors continued to mull over the impact of US data on a potential interest rates rise. Durable goods orders excluding transportation gained for a second month by 0.5% in April against expectations of 0.3% while new home sales and consumer confidence also managed to surprise on the upside. Recent comments from Fed Vice Chairman Stanley Fischer have put increasing emphasis on the data driven outlook for a rise in interest rates and with some marginal improvement to key metrics any further improvement could see additional dollar strength.

TOPIX extends gains, pushing to a fresh multi-year high

TPX Index Tokyo Stock Exchange 2015 05 27 07 41 37

JPY breaks out on the upside

JPY Curncy Japanese Yen Spot 2015 05 27 07 53 34

DXY continues recovery after recent sell-off

DXY Curncy DOLLAR INDEX SPOT 2015 05 27 07 33 37

Events for today

0700

DE

Jun

GfK Consumer Confidence

1445

US

May

Markit Composite PMI

Topics: US Fed, Equities, USD, JPY, DXY
More from: Kash Kamal