Yen's dive and Moody's shadow cast on global markets

Investors brace for inflation data and diplomatic talks amidst divergent central bank policies

By Ahmed Azzam | @3zzamous | 13 November 2023

  • Japanese yen hits one-year low near 152 per dollar, sparking intervention concerns.

  • Investors await US consumer price data, expecting a dip to 3.3% YoY in October.

  • Moody's cuts US debt outlook to negative.

Asian equities relinquished early gains, mirroring the partial retreat in US futures, as investors navigated a landscape marked by impending crucial inflation data and a high-stakes meeting between US President Joe Biden and Chinese President Xi Jinping later in the week.

The Japanese yen further weakened, establishing a new nadir against the dollar in 2023. This downtrend, dipping below 152 per dollar, prompted apprehension among market participants, fueling speculation about potential interventions by authorities to bolster the currency. Concurrently, Treasuries exhibited stability after experiencing a sell-off in the preceding week, particularly impacting the short end of the yield curve. The 10-year yield maintained its position just below the 4.7% threshold.

All eyes are focused on the imminent release of US consumer price data scheduled for Tuesday. Projections anticipate a moderation in inflation to a year-on-year rate of 3.3% for October, a slight easing from the 3.7% recorded in the preceding month.

Japanese Yen marks fresh one-year low

The Japanese yen's descent to a fresh one-year low, approaching 152 against the dollar, unfolded against the backdrop of heightened anticipation for US inflation figures and forthcoming statements from Federal Reserve officials. Last week's hawkish rhetoric from US policymakers, notably Federal Reserve Chair Jerome Powell's declaration that the central bank is "not confident" in its efforts to curb inflation, contributed to market unease.

This hawkish stance sharply contrasts with the Bank of Japan's commitment to maintaining accommodative monetary settings. BOJ Governor Kazuo Ueda urged caution in navigating uncertainties while acknowledging that policy divergence played a role in the yen's depreciation. Notably, the BOJ recently redefined 1% as a flexible "upper bound" for 10-year Japanese Government Bonds, eliminating a previous commitment to defend this level with unlimited bond purchases.

Moody’s alters US debt outlook to negative

On the credit rating front, Moody's recent decision to revise the United States' debt outlook to negative stands in contrast to the stable outlooks maintained by Standard & Poor's (AA+), Fitch (AA+), and DBRS (AAA). Moody's currently assigns a credit rating of Aaa to the United States.

These credit ratings hold significant sway, influencing the perceptions of sovereign wealth funds, pension funds, and other investors regarding the creditworthiness of the United States. Consequently, they have a substantial impact on the country's