The Bank of Japan kept interest rates unchanged at its April meeting on Friday, temporarily propelling the yen below 155 per US dollar, its lowest level since 1990, and fueling speculation that the authorities might step in to prop up the currency. The yen has been depreciating since the beginning of 2021; last month’s decision by the Bank of Japan to end its negative interest rate policy and raise its short-term rate for the first time in 17 years to a range of 0-0.1% does not yet appear to have affected it. The Bank has long grappled with maintaining sustainable

The Japanese yen has experienced a drastic weakening in the last few months, reaching its lowest level against the dollar in 24 years with a 25% loss in value in the year to date, a trend which is becoming increasingly concerning for Japan. Refresh this chart in your browser | Edit the chart in Datastream On the face of it, this is an unusual development. In a risk-off environment, when equities are falling, the Japanese yen tends to strengthen. There is, in other words, a negative correlation between equity price changes and the change in the value of the Japanese yen against

In the past, when efforts to rebalance have triggered a slowdown, China has thrown in the towel, opting to support economic growth while exacerbating domestic and global imbalances. This time is no different. Indeed, as we demonstrated to clients in a more detailed note, as long as near-term growth remains China’s priority, we should expect to see this flip-flopping in economic policy time and time again. Refresh the chart in your browser | Edit chart in Datastream With the Fathom measure of China’s economic activity (our China Momentum Indicator 2.0) pointing to a slowing of growth amid escalating trade tensions, we informed

US-listed firms that derive a significant share of their revenue in China have significantly underperformed their peers in 2018. Fathom’s China Exposure Index (CEI) peaked at 117.3 on 22 March, the day that the US first announced that it would impose tariffs on imports from China; it has now dropped to 100.1, meaning that firms in the CEI have underperformed their US-listed peers by 15% since then. Sino-US trade tensions, a weakening renminbi and China’s slowing economy explain the underperformance. An easing of such trade tensions, and a firm commitment by China to open its markets to US firms, would

Fathom’s measure of economic activity in China — the CMI — stood at 6.5% in June, unchanged from the revised May reading, but below both its recent peak and official GDP estimates. After months of waning momentum, this steadying may reflect China’s recent efforts to support the economy through monetary stimulus, a sign that it is again doubling down on its old growth model. Refresh the chart in your browser | Edit chart in Datastream Faced with slowing growth and escalating trade tensions, we correctly predicted that China would also allow its currency to weaken, with a forecast of 6.8 against the

Fathom Consulting’s proprietary liquidity indicator, the FLIQ, points to a drop in market liquidity amid Federal Reserve rate hikes and quantitative tightening. The FLIQ is calculated by looking at the price of closed-end funds (CEFs). It is designed to provide a timely and intuitive assessment of aggregate financial market liquidity risk. By their nature, CEFs will tend to trade at a discount to the value of the underlying assets (their net asset value, or NAV). By measuring the size of this discount, relative to its historic average, we can obtain an estimate of the abundance, or the scarcity of market

Fathom’s measure of China’s economic activity, its CMI 2.0, continued its descent in May, slowing to a 15-month low of 6.2%. Refresh the chart in your browser | Edit chart in Datastream Below the official estimate of GDP growth, which was 6.7% in the second quarter, the widening wedge between Fathom’s measure and the official measure is increasingly reminiscent of the gap that emerged in late 2013 – 2015. Back then, just as they are now, the Chinese authorities used monetary stimulus to support short-term growth, repeatedly cutting banks’ reserve ratio requirements while denying that the economy was materially slowing. Refresh the

Seiko earnings may get boost from weaker yen.