Yen surges on new intervention talk, US stocks rally ~ EconomyLens.com

New York (AFP) – The yen rallied against the dollar Thursday on fresh talk of intervention by Japan to boost its currency, while Wall Street stocks jumped on hopes the US central bank will leave interest rates unchanged. But markets remained on edge amid new Iran strikes against US targets in the Gulf, while bond yields eased. Wall Street’s main indexes ended the day more than 1.0 percent up, with the Nasdaq Composite Index rising 1.4 percent.

“(US Federal Reserve) Governor Christopher Waller is sparking a market rally today after he hinted at a September pause” on interest rate adjustments, said Jose Torres of Interactive Brokers. US Treasury Secretary Scott Bessent also fueled optimism when he earlier said that “interest rates will fall once the Middle East conflict is resolved and oil cheapens,” Torres added in a note.

The yen jumped more than two percent against the dollar in European trading hours amid renewed speculation of another intervention to prop up the sagging currency, which increases import costs for Japan. “The Japanese yen has emerged as the main story in FX markets today,” said Fawad Razaqzada at Forex.com. “Suspected BoJ intervention and, more likely, expectations of a hawkish BoJ hike have helped to lift the yen across the board,” he added, referring to Japan’s central bank.

The Bank of Japan and the US Treasury intervened in July to boost the yen, but its effect proved short-lived. One reason behind the softness of the currency is the large difference between Japanese and US interest rates, which encourages investors to borrow in yen and then invest in higher-yielding US assets in what is known as a carry trade. With the possibility that the Fed could hike interest rates at its meeting later this month, the Bank of Japan is also under pressure to raise rates to support the yen.

– US jobs data on tap –

Investors are awaiting Friday’s release of US employment figures and the country’s inflation update next week to get a better indication of whether the Fed will raise rates. There are concerns for borrowers that central banks could enter a sustained round of interest rate hikes as elevated oil prices due to the Middle East war push up wider inflation. Those fears have seen yields on government bonds strike multi-decade highs this week as investors demand higher returns in anticipation of rate hikes, provoking further concern about whether governments can handle the higher cost of their large debt loads.

“The jump in borrowing costs can be blamed on many factors,” said David Morrison, senior market analyst at financial services provider Trade Nation. “These include investor concerns over high, and seemingly ever growing, levels of government debt,” Morrison said. He pointed also to “inflation fears linked to higher energy prices thanks to the US war with Iran.” Iran attacked US military bases in Kuwait on Thursday, despite US President Donald Trump threatening further strikes in a fresh flare-up six months into the war. The new clashes, which began with US raids Sunday, deepen the impasse. Iran maintains a stranglehold on the strategic Strait of Hormuz, and the US is pressing its counter-blockade of Iranian ports.