JPY & CNY - Markets & outlook
Japanese yen - JPY:
The Japanese yen (JPY) is a major global currency and a safe-haven asset, appreciating during global economic uncertainty. Its value is influenced by Japan's monetary policy, economic performance, global risk sentiment, and trade flows.
Unlike commodity currencies like the Australian dollar (AUD) or Canadian dollar (CAD), the yen is shaped by the Bank of Japan (BoJ) and its interest rate policies. Japan's ultra-low or negative interest rates stimulate growth and prevent deflation, making the yen a popular funding currency for carry trades. When markets are stable, demand for the yen weakens as traders seek riskier assets. In economic stress, investors unwind carry trades, strengthening the yen.
Japan's export-driven economy also affects the yen. A weaker yen benefits exports by making goods cheaper globally, while a stronger yen can hurt exports by making products more expensive. The yen's value is tied to trade balances, manufacturing performance, and demand from key partners like the US and China.
The JPY/USD pair is highly liquid, and the US dollar impacts the yen's exchange rate. A stronger USD weakens the yen, while a weaker dollar supports JPY appreciation. Japanese authorities may intervene in forex markets to prevent excessive yen appreciation, as seen in past interventions.
Geopolitical tensions, like the Ukraine war, have impacted the yen's safe-haven role. Uncertainty in Eastern Europe has led investors to shift funds into the yen, supporting its value. Japan's reliance on imported energy makes the yen vulnerable to rising commodity prices and supply chain disruptions.
The yen's future performance depends on BoJ policy, global risk sentiment, trade relations, and geopolitical developments. A shift from low interest rates could strengthen the yen, while continued loose monetary policy may keep it weak against higher-yielding currencies.
Chinese yuan - CNY:
The yuan sliding past the key level of 7.3 per dollar indicates that the Chinese economy, the world's second-largest economy, is facing challenges in its recovery from the Covid-19 pandemic. When the yuan weakens against the dollar and breaches the 7 per dollar mark, it suggests a depreciation of the Chinese currency.
The fact that the yuan has slid past this key level could be seen as a signal that the recovery momentum of the Chinese economy is slowing down or facing headwinds.
The Chinese government has historically maintained a certain level of control over the value of the yuan, and a weakening yuan can have implications for various aspects of the economy. It can affect the cost of imports, the competitiveness of Chinese exports in international markets, and potentially lead to capital outflows as investors seek stronger currencies.
China’s weakening economy prompted the central bank to cut interest rates in June, and expectations are growing for more stimulus targeted at ailing industries including the property sector.
Official data showed a slump in real estate, a worrying decline in business investment and record joblessness among young people in China.
