FT News Briefing A new day dawns for the yen
Mar 28, 2024
Japan's shift away from negative interest rates may lead to increased yen volatility, affecting global markets. Meanwhile, Disney has settled its legal tangle with Florida, easing tensions in the theme-park realm. In the U.S., small-cap stocks are facing their toughest times against larger firms in over two decades, even as tech giants drive major indices to record highs. This dynamic indicates a potential pivot in investor sentiment towards smaller companies, with changing economic conditions and interest rates in play.
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Yen's Unique Position
- The Japanese yen has been a popular currency for investors due to Japan's decades of ultra-low and negative interest rates.
- This made the yen a reliable asset for carry trades, where investors borrow in yen and invest in higher-yielding currencies.
Yen Volatility
- Raising interest rates above zero could increase the yen's volatility, making it less predictable.
- However, the carry trade persists due to the significant spread between US and Japanese interest rates.
Impact on Emerging Markets
- Increased yen volatility could impact emerging markets that rely on yen-denominated bonds.
- A stronger yen makes it harder for these countries to repay their debts, limiting their financing options.