Published: Wed, July 13, 2016
Economy | By Melissa Porter

Japan leads world stock markets higher on stimulus hope

Traders said the yen's drop has been exacerbated by position squaring. The gains for USD/JPY should be sustainable but for sterling, we are convinced that this is nothing more than a short squeeze.

Asia markets advanced on Wednesday, extending a global rally that pushed major USA indexes to records amid expectations of further easing from Japan and the resolution of some concerns over the United Kingdom political jumble.

Shares rose in Europe and Asia on Monday and the safe-haven yen tumbled against the USA dollar after upbeat data, though the prospect of more stimulus to counter a weak global growth outlook kept low-risk sovereign bond yields near record lows.

Despite last seeing these prices just seven days ago the sudden climb means sterling is on track for its biggest daily gain since the shock vote for Brexit sent the pound to lows not seen since the Thatcher era more than 30 years ago.

At session's end, the dollar was fetching 103.14 yen.

According to these analysts, Abe is preparing the groundwork for "helicopter money" by signalling that he wants to take advantage of the Bank of Japan's zero-interest-rate policy to issue bonds that will finance public-private partnerships. Along with the stimuli, diminishing political uncertainty in UK, Japan and Australia has added supportive foundation to this current risk rally.

"The market is now priced for more than 10 trillion yen, but it will be more about the fiscal-monetary coordination that is driving markets", said Hans Redeker, head of currency strategy at Morgan Stanley. There was broad based weakness in the United Kingdom economy before Brexit with retail sales and average hourly earnings growth slowing alongside construction and service sector activity.

You have left for this month.

Before the BoE meets however, the focus will be on the Bank of Canada's monetary policy announcement.

On the economic front, Japan will provide final May numbers for industrial production today. The contract fell 65 cents, or 1.4 percent, to close at $44.76 a barrel on Monday.

The British pound extended its recovery early Tuesday to trade above 1.3050, after dropping to a low of 1.2849 against the greenback on Monday. While supply side reforms may have triggered a surge in iron ore prices, the market was also spurred on by prospects of further stimulus from Chinese policymakers.

Prime Minister Shinzo Abe did not wait to start working on his program, and has instructed economic minister Nobuteru Ihihara to draft economic measures to bring Japan out deflation and boost GDP growth. Sep copper (HGU16 +1.96%) this morning is up +0.036 (+1.68%) and Sep silver (SIU16 +0.75%) is up +0.351 (+1.75%) due to expectations for a new Japanese fiscal stimulus package combined with continued optimism from last Friday's stronger-than-expected payroll report of +287,000. If imports fall sharply, AUD and NZD will give up their gains with AUD likely to be hit harder than NZD because they have greater dependency on China.

Commodity currencies including the Australian and New Zealand dollars jumped to multi-month highs as risk appetite returned.

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