Most Asian shares fell to three-week lows on Friday, but Japan bucked the trend after its finance minister pledged to guard against strong moves in the yen in either direction.
While that led to a slight retreat in the yen from a 17-month high against the dollar, the Japanese currency is still headed for weekly gains against its major counterparts.
The calmer mood in markets leaves perceived havens under pressure, with gold down $8 to $1,232 an ounce and government bond prices lower, pushing up yields.
After a mixed Asian equity session the pan-European Stoxx 600 is up 0.7 per cent and futures indicate the S&P 500 in will climb 0.5 per cent to 2,053 when the opening bell rings later in New York.
The Stoxx and S&P lost 0.8 per cent and 1.2 per cent respectively in the previous session as investors were rattled by action in two closely watched proxies of risk appetite: oil and the yen.
Japan’s Nikkei .N225 erased earlier losses after Finance Minister Taro Aso said the government would take steps to counter “one-sided” moves in the yen in either direction.
During US trading on Thursday, the yen firmed to Y107.67 per dollar — its strongest since October 2014. At that level the Japanese currency had gained 9.4 per cent since the country’s central bank in February,a strategy that many thought should weaken yen.
“Dollar weakness remains the dominant global market trend and the US currency plumbed new recent lows versus the Japanese yen yesterday, below the Y108 level for the first time in 18 months,” said Ian Williams. strategist at Peel Hunt
Analysts at Nomura said: “The outlook for the global economy has become increasingly clouded amid steep declines in resource prices and slowing in emerging economies and the external environment has seen significant changes since January in such areas as yen appreciation and the Bank of Japan’s adoption of a negative interest rate policy [Nirp]”.
Indeed, fears that the BoJ may seek to weaken the yen by extending Nirp, and that such a move would be followed by other monetary guardians, has left global bank shares leading the latest stock market stumble.
Today´s theme is risk appetite : risk appetite is getting further support from a rebounding oil price, calming fears about further pain for the energy sector; easing stress in banks’ energy-debt portfolios; and perhaps reducing the need for oil producing nations to sell financial assets to raise funds.
Brent crude, the international oil benchmark, which at one stage on Thursday was down 2.9 per cent, is up 1.9 per cent to $40.19 a barrel, while West Texas Intermediate, the US marker, is gaining 2.8 per cent to $38.29.
The overall mood regarding oil this week has been optimistic, as Kuwait’s Opec governor said there were positive indications major producers would, at a meeting scheduled for April 17, reach an agreement to freeze output, even without the participation of Iran. Data also showed a surprise weekly decline in US stockpiles, the first in two months.
In government bonds there is a modicum of selling as investors feel less need to hold supposed safety plays. In a moderated informal discussion on Thursday evening between past and current chairs of the Federal Reserve, Janet Yellen, the incumbent, said the central bank was still on track for further interest rate rises this year.
The yield on the US 10-year Treasury, which on Thursday fell to a six-week low of 1.69 per cent, is up three basis points on the day to 1.72 per cent. Equivalent maturity German Bunds are adding 1bp to 0.10 per cent and the euro is dipping just 18 pips to $1.1357.
The pound is up 0.1 per cent to $1.4072 as the cost of protecting against sterling volatility over the next three months — which includes the “Brexit” vote — holds its highest levels since May 2010.
Sources:Reuters, FT, Bloomberg