The yields of the government bonds to 10 years from Japan (JGB) rose about 1.59%, the highest level since 2008, during the early Asian session on Tuesday. The operators prepare for a possible change of power in the elections of the upper house this weekend that could accelerate fiscal spending and bring the bond yields to higher long term.
The elections in Japan mark an important evidence for the minority government of Prime Minister Shigeru ishiba. The decrease in the popularity of ISHIBA has generated doubts about the ability of its coalition to maintain a majority. Reuters’ opinion polls suggest that Ishiba’s coalition could lose its majority in the upper house of Parliament, forcing it to seek support of a series of smaller parties that advocate a more flexible fiscal and monetary policy.
Market reaction
At the time of writing, the USD/JPY is quoting 0.07% lower in the day at 147.62.
Japanese – frequent questions
The Japanese Yen (JPY) is one of the most negotiated currencies in the world. Its value is determined in general by the march of the Japanese economy, but more specifically by the policy of the Bank of Japan, the differential between the yields of the Japanese and American bonds or the feeling of risk among the operators, among other factors.
One of the mandates of the Bank of Japan is the currency control, so its movements are key to the YEN. The BOJ has intervened directly in the currency markets sometimes, generally to lower the value of YEN, although it abstains often due to the political concerns of its main commercial partners. The current ultralaxy monetary policy of the BOJ, based on mass stimuli to the economy, has caused the depreciation of the Yen in front of its main monetary peers. This process has been more recently exacerbated due to a growing divergence of policies between the Bank of Japan and other main central banks, which have chosen to abruptly increase interest rates to fight against inflation levels of decades.
The position of the Bank of Japan to maintain an ultralaxa monetary policy has caused an increase in political divergence with other central banks, particularly with the US Federal Reserve. This favors the expansion of the differential between the American and Japanese bonds to 10 years, which favors the dollar against Yen.
The Japanese Yen is usually considered a safe shelter investment. This means that in times of tension in markets, investors are more likely to put their money in the Japanese currency due to their supposed reliability and stability. In turbulent times, the Yen is likely to be revalued in front of other currencies in which it is considered more risky to invest.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
