JPY & HKD - 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.
Hong Kong dollar - HKD:
Draconian restrictions on tourism have been relaxed finally however pessimism continues surrounding the city’s economic outlook into the future.
In February, the Hong Kong dollar remained stable against the USD but dipped slightly towards month-end. Government measures supported the property market amidst economic challenges. Future strength depends on local economic recovery and Fed’s stance.
The Hong Kong dollar held its strength well in February, only down by less than 0.2% against the USD. It fell to a 4-month low near month end, but the USDHKD pair remained under 7.83 level.
In February, local government released some significant measures to support its property market such as scrapping additional stamp duty for non-permanent residents and easing mortgage lending rules. Against the backdrop of slowing economy where inflation has dropped to sub 2% level (from 2.4% to 1.7%), Q4 GDP q/q was only 0.4%, and PMI remained under 50, these measures were welcomed by the market.
However, the HKD did show a downward trend against the USD despite of the support from still elevated Hong Kong Interbank O Rate (HIBOR) rates and rising local stock market, hence whether the local economy can see some signs of bounce back would be one of the main factors that may affect HKD strength in March. But the HKD is unlikely to be under more pressure should the Fed deliver a relatively dovish stance for future interest rate path.
