This is Snow White, who has previously contributed articles about financial markets.

At the request of SEREN, I will now be providing weekly market updates.

 

Thank you for your support.

 

The USD/JPY briefly reached the 149 yen level in the New York market last Friday.

 

Last week’s yen depreciation was due to two reasons:

(1) Prime Minister Ishiba’s “personal” comments that a further rate hike is unwarranted (October 2), and

(2) the unexpectedly strong U.S. employment report for September (October 4).

 

In essence, the market reacted to signs that the premise of “additional rate hikes by the BOJ and significant rate cuts by the Fed” was beginning to crumble.

 

After meeting with BOJ Governor Kazuo Ueda on October 2, Ishiba stated, “The government is not in a position to dictate the BOJ’s policies,” but added, “Personally, I don’t believe we’re currently in an environment that would require us to raise interest rates further.”

 

In response to this statement, the USD/JPY advanced by more than 3 yen to the 146 level.

Notably, it surpassed the 146.35 yen level recorded just before Ishiba’s victory in the LDP presidential runoff on September 27.

 

Before the LDP leadership election, foreign investors were engaged in the “Takaichi trade,” anticipating a revival of Abenomics if Takaichi won. Takaichi’s September 23 comment that raising interest rates now would be “stupid” was widely reported in English and was seen as contrasting with Ishiba, who had shown understanding for BOJ’s normalization efforts.

 

 

The runoff between Takaichi and Ishiba was regarded as a “vote on Abenomics,” and Ishiba’s victory led to a rapid 3-yen appreciation of the yen, with USD/JPY falling to the 142 level.

This was interpreted as the LDP deciding to move away from Abenomics and accept normalization of BOJ policy.

 

The yen appreciation and stock market decline following Ishiba’s victory should be seen as a “reversal of the Takaichi trade” rather than an “Ishiba shock.” The market revived expectations for a BOJ rate hike in December.

 

However, once the Ishiba administration was established, it became clear that Ishiba could not impose his will on anything except personnel matters, and that it was essentially just a continuation of the Kishida administration.

 

Moreover, BOJ Governor Ueda himself had changed the tone of his statements since September. In his September 20 press conference and September 24 speech, he repeatedly stated that the BOJ has “enough time” to carefully assess uncertain developments in the U.S. economy.

 

 

Prime Minister Ishiba explained on the evening of October 3 that he had Ueda’s perception of “enough time” in mind.

This indirectly emphasized that Ueda himself was also taking a wait-and-see approach for the time being.

 

Furthermore, the September U.S. employment report released on the evening of October 4 showed non-farm payrolls increased by 254,000, exceeding market expectations (+150,000) by over 100,000.

The past two months were also revised upward by a total of 72,000.

 

On a quarterly basis, the 3Q average increase of 186,000 actually exceeded the 2Q average of 147,000.

 

The unemployment rate also fell to 4.1% for the second consecutive month.

 

This is crucial.

 

When deciding on a 0.5% rate cut at the September 18 FOMC meeting, the Fed had changed its description of job gains from “have moderated” to “have slowed.”

However, employment seems to have actually bottomed out.

 

 

As of September, the Fed was forecasting a total 0.5% rate cut over the November and December meetings, assuming the unemployment rate would worsen to 4.4% by year-end.

In response to the unexpected improvement in employment, market participants reconsidered their Fed scenario, leading to a rise in USD/JPY above 148 yen.

 

However, it’s worth noting that while the U.S. employment report was indeed a globally important event, the USD/JPY fluctuation was actually just a supporting actor.

 

For foreign investors, Japan is no longer a major target, and the escalation of tensions in the Middle East and recent Chinese economic stimulus measures have become the main themes.

 

 

I’ve run out of space for this week, but I recommend readers pay close attention to news from Israel and China.

 

 

In next week’s issue, I plan to address these issues as well.