Yen climbs over news of likely next Bank of Japan governor

The yen climbed on Friday as investors responded to news of the likely appointment of academic Kazuo Ueda as the next Bank of Japan governor.

The Japanese currency climbed 0.45 per cent to 130.97 to the dollar, as markets judged Ueda would mark a departure from the ultra-dovish policies of Haruhiko Kuroda, who is due to step down in April.

“The choice of Kazuo Ueda as the next governor has taken market participants by surprise as he was not considered as one of the leading candidates,” MUFG analysts wrote in a note. “The knee-jerk reaction has been for the yen to strengthen, reflecting a combination of uncertainty over Kazuo Ueda’s monetary policy views and that the continuity candidate Masayoshi Amamiya chose not to take the job.”

The yen dropped to a three-decade low of 151.94 in October, driven by the growing gulf between Japan’s loose monetary policy and interest rate rises elsewhere in the world. The currency has since rebounded and Kuroda relaxed the BoJ’s policy of pinning bond yields close to zero.

Brent crude was up 2.5 per cent to $86.62 per barrel after Russia said it would cut about 5 per cent of its monthly oil output in March in response to the price cap imposed by western nations, its deputy prime minister said on Friday.

West Texas Intermediate, the main US benchmark, rose 1.9 per cent to $80.02 per barrel.

In equity markets, European stocks slid in early morning trade after investors noted good news earlier in the week on inflation and natural gas prices. Analysts said many positions on equities were at present overweight.

“When you look at the market at the start of the year it was strong, whereas now we are at the end of the bullish wave and now markets need to breathe,” said Nadège Dufossé, global head of multi-asset at asset manager Candriam. “It’s not likely linked to any good or bad news.”

The European Stoxx 600 was 1.4 per cent down in midday trading, while Germany’s Dax fell 1.5 per cent. The French Cac 40 dipped 1.36 per cent.

While investors stressed these movements were somewhat “noisy” and that fluctuations were to be expected, factors such as the morning’s boost in oil prices and weak corporate results played a role in the sell-off.

“There’s a bit of Russian risk coming back into the market,” said Emmanuel Cau, head of European equity strategy at Barclays. “Especially with headlines about Ukraine, like Russia sending missiles.”

“What’s going on is a carry-over from US equity weakness, the Nasdaq in particular,” said Neil Shearing, group chief economist at Capital Economics. “There is also a pushback from policymakers against the idea that rates might be close to peaking and the job is done.”

Earlier in the week, German inflation data came in lower than expected at 9.2 per cent, a five-month low and third consecutive decline, while, in welcome news for consumers, European natural gas futures fell to a 17-month low of €52.77 per megawatt hour. While the European Central Bank pressed ahead with a 0.5 per cent interest rate rise in its fight against inflation, investors have felt some reassurance that the ECB will not raise rates by more than expected.

German 10-year Bunds gained 0.05 percentage points, offering a yield of 2.4 per cent.

UK investors were greeted on Friday with news that the economy had narrowly avoided a recession, despite output shrinking more than expected in December. The UK is the only G7 economy expected to experience a recession this year. Growth in the fourth quarter was flat, below Bank of England expectations of 0.1 per cent.

Sterling experienced minor losses against the dollar, falling 0.1 per cent, while the FTSE 100 lost 0.7 per cent.

UK gilt yields recorded an uptick, with 10-year gilts gaining 0.1 percentage points to 3.39 per cent.

US futures contracts following the blue-chip S&P 500 fell on Friday mid-morning, down 0.65 per cent, while the Nasdaq equivalents lost 1.1 per cent. US stocks slipped on Thursday afternoon, having swung up earlier in the day: the S&P 500 lost 0.9 per cent and the Nasdaq 1 per cent. The dollar index, which measures the greenback against a basket of six of its peer currencies, lost 0.2 per cent.

In Asia, the Hang Seng index lost almost 2 per cent, while the Chinese CSI 300 fell 0.6 per cent.

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