US Business

Japan is ready to take action if the yen’s plummeting value remains volatile, officials repeated on Thursday, after the currency hit 24-year lows.

The yen has tumbled from around 115 per dollar in March to lower than 140 last week, as the Bank of Japan (BoJ) sticks with its monetary easing policies in contrast to rate hikes from other central banks including the US Federal Reserve.

It has continued to drop fast, nearly touching 145 per dollar overnight in New York, as investors flooded into the US currency hoping for better returns and as a safe-haven hedge.

Japan has not announced any specific measures to bolster the yen, such as instructing the central bank to buy it against other currencies.

But on Thursday, officials from the BoJ, the finance ministry and the government’s fiscal services agency held a meeting while the yen hovered close to 144 per dollar.

“If (the yen) continues to fluctuate like this, the government is ready to take the necessary response in financial markets,” Masato Kanda, Vice-Minister of Finance for International Affairs, told reporters after the meeting.

“Various measures” are on the table, he said without giving details. His comments closely echoed remarks made Wednesday by Japan’s finance minister, who said rapid shifts in foreign exchange rates were “not desirable”.

Ray Attrill, head of FX strategy at National Australia Bank, said the rhetoric would have little effect.

“The market’s not buying what the Japanese officials are selling in terms of their public concerns about the moves in the yen. They’ve basically been singing from exactly the same hymn sheet,” he told AFP.

A weaker yen can help Japanese companies to sell products overseas, but “at these levels, the disadvantages of a weak yen are starting to outweigh the benefits,” with households and businesses facing higher import prices, Attrill said.

Inflation more broadly has risen to seven-year highs in Japan, partly due to the impact of the war in Ukraine on energy prices, but it is still less severe than in many major economies.

Prime Minister Fumio Kishida announced Thursday that the government will use 3.5 trillion yen ($24 billion) of reserve funds to address the domestic impact of inflation, and will deliver cash relief packages to low-income households.

New British Prime Minister Liz Truss on Thursday said domestic fuel bills would be frozen for two years, marking her first week in office with a costly plan to tackle a politically perilous cost-of-living crisis.

The government said it would also review progress towards its legally enshrined target to achieve net-zero carbon emissions by 2050, to ensure the needs of consumers and businesses are taken into account, while stressing it remained committed to the goal.

Households are facing an 80-percent hike in gas and electricity bills next month due to the rise in the cost of wholesale energy made worse by a squeeze on supplies after Russia’s invasion of Ukraine.

Businesses whose bills are not capped have warned they could go to the wall because of even bigger rises, at the same time as inflation is at 40-year highs of 10.1 percent and predicted to go higher.

The government expects the state-backed scheme to cost tens of billions of pounds (dollars), but Truss and new finance minister Kwasi Kwarteng insisted it would have “substantial benefits” to the economy.

It would curb inflation by four to five percentage points, they said in a statement.

They also announced an end to a ban on fracking — a controversial method to drill for fossil fuels — and more drilling licences for North Sea oil and gas.

Truss said “decades of short-term thinking on energy” and failing to secure supplies had left Britain, which is heavily reliant on gas for its energy needs, vulnerable to price shocks.

“Extraordinary challenges call for extraordinary measures, ensuring that the United Kingdom is never in this situation again,” she said.

Kwarteng said the freeze means worried households and businesses “can now breathe a massive sigh of relief”.

– No windfall tax –

Tackling the cost-of-living crisis, which has led to widespread strike action over pay, threatens to define Truss’s premiership, just two days after she formally took over from Boris Johnson.

Truss said energy bills for an average British household would be capped at £2,500 ($2,872) a year — £1,000 less than October’s planned level.

Non-domestic energy users, including businesses, charities, and public sector organisations such as schools and hospitals, will see a six-month freeze.

Analysts predict the plan, which will likely be in place at the next general election expected in 2024, could top well over £100 billion, surpassing Britain’s Covid-era furlough jobs scheme.

Truss confirmed that the government will pay energy suppliers the difference in price but did not put an exact figure on how much it could cost the public purse, pending a mini-budget this month by Kwarteng.

Truss, a former Shell employee, has rejected opposition calls to impose windfall taxes on energy giants whose profits have surged on the back of higher wholesale prices. 

In her campaign to succeed Johnson, she had also ruled out direct handouts to consumers, but the new scheme reverses course on that.

She said the new price cap was calculated by temporarily removing green levies worth some £150 a year from household bills.

Paying for the freeze by increased borrowing has stoked concern on the financial markets about the prospect of worsening public finances already damaged by emergency Covid spending.

On bond markets, the UK’s 10-year borrowing rate topped three percent on Tuesday for the first time since 2014, and the pound has slumped to its lowest dollar level since 1985.

– Fracking –

The end to the fracking moratorium comes despite Truss’s Conservative party having pledged in 2019 to keep it in place, after onshore drilling for shale gas had caused seismic tremors in northern England.

She said that lifting the ban “could get gas flowing in as soon as six months”.

But experts have cast doubt about the effect on bills, given the time taken to start production and the amount of gas it could yield.

Kwarteng himself wrote in March that it could take up to a decade to get enough gas from fracking. At the same time, there is concern about the environmental damage of restarting the process.

Like Johnson, Truss committed to diversifying Britain’s energy sources to renewables and nuclear.

But she said the net-zero review, scheduled to conclude by the end of the year, would “ensure delivering the target is not placing undue burdens on businesses or consumers”.

The new support package offered nothing about insulating UK buildings better, to reduce high rates of energy leakage, and the government also ruled out any campaign to encourage the public to save energy.

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European stock markets traded mixed Thursday, ahead of major policy decisions from Britain and the European Central Bank aimed at tackling sky-high inflation.

The pound remained close to a 37-year low against the dollar that was struck Wednesday, as new British Prime Minister Liz Truss prepared to announce that she will freeze domestic fuel bills to help ease the burden of a UK cost-of-living crisis.

The euro steadied versus the greenback, with the ECB forecast to hike eurozone interest rates by a record-high 75 basis points.

Oil prices dropped further on fears of a global recession but losses were far less sharp than on Wednesday.

“There may be fresh storms brewing for the global economy but inflation is the tornado to tame and the drop in crude prices has lifted hopes in the US at least that the price spiral may be easier to control,” noted Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Fears abound that global central bank moves to rein in runaway inflation by ratcheting up borrowing costs will spark recessions in leading economies.

The dollar has moved ever higher against its major peers in recent weeks as investors flood into the currency hoping for better returns and as they seek a haven in the face of economic turmoil.

The US unit is closing in on a 32-year peak against the yen owing to the Bank of Japan’s refusal to raise interest rates.

Observers expect the dollar to keep attracting strong interest as long as the Federal Reserve keeps ramping up US interest rates by sizeable amounts.

The Fed holds its next policy meeting on September 21, with a third successive 75-basis-point lift forecast.

“For years, central bank interest rate decisions used to be background noise, with investors confident that rates would stay low,” Russ Mould, investment director at AJ Bell, said Thursday.

“This year they’ve become must-watch events, with every word studied by the market. The current theme is not whether central banks will raise rates, but by how much.”

On the corporate front, shares in cyber security company Darktrace crashed around 30 percent after US private equity firm Thoma Bravo ended its takeover interest in the British group.

– Key figures at around 1000 GMT –

London – FTSE 100: UP 0.3 percent at 7,256.23 points

Frankfurt – DAX: DOWN 0.1 percent at 12,901.90

Paris – CAC 40: UP 0.4 percent at 6,130.18

EURO STOXX 50: DOWN 0.2 percent at 3,507.91

Tokyo – Nikkei 225: UP 2.3 percent at 28,065.28 (close)

Hong Kong – Hang Seng Index: DOWN 1.0 percent at 18,854.62 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,235.59 (close)

New York – Dow: UP 1.4 percent at 31,581.28 (close)

Euro/dollar: DOWN at $0.9996 from $1.0012 on Wednesday

Pound/dollar: DOWN at $1.1486 from $1.1535

Euro/pound: UP at 87.01 pence from 86.74 pence

Dollar/yen: UP at 143.87 yen from 143.79 yen 

West Texas Intermediate: DOWN 0.6 percent at $81.43 per barrel

Brent North Sea crude: DOWN 0.3 percent at $87.71 per barrel

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Taiwanese semiconductor giant TSMC said Thursday its August revenue rose nearly 60 percent to a record high of Tw$218.13 billion ($7.06 billion) on soaring global demand. 

Taiwan Semiconductor Manufacturing Company operates the world’s largest silicon wafer factories and produces some of the most advanced microchips used in everything from smartphones and cars to missiles. 

The vast majority of the world’s top-notch microchips are made by just two companies — TSMC and Samsung — both of which are running at full capacity to alleviate a global shortage. 

The Taiwanese firm controls more than half of global foundry output, with clients including Apple and Qualcomm.

Its August revenue rose 58.7 percent on-year and 16.8 percent from July to an all-time high of Tw$218.13 billion — the first time it has reached the Tw$200 billion mark, according to a company statement. 

Revenue for the first eight months of the year totalled Tw$1.4 trillion, a 43.5 percent increase on the same period in 2021. 

TSMC chief executive C.C. Wei told an investor conference in July that customer demand continued to exceed the company’s ability to supply and he expected capacity to remain tight throughout 2022. 

But he also expected “a few quarters of inventory adjustment” through the first half of 2023 due to softening demand for some products including smartphones and personal computers.

While Taiwan’s semiconductor and high-tech industry has shown impressive growth, other parts of the economy are showing signs of an impact from the general global slowdown. 

Taiwan’s exports in August grew at their slowest pace in more than two years by just two percent to $40.34 billion, the finance ministry said.

That compared to 14.2 percent growth in July and was the slowest pace of increase since July 2020’s 0.3 percent when exports were hammered by the emergence of the coronavirus pandemic.

Exports would have dropped 4.2 percent from a year earlier without the electronic components industry, which accounted for over 40 percent of overseas shipments in August, according to the ministry. 

Semiconductor exports rose 14.3 percent from a year earlier to $15.69 billion last month but a slowdown in demand for consumer electronic products saw shipments for information/communication, audio and video products drop 1.6 percent on-year. 

Exports in the “old economy sector” largely declined last month, with plastics/rubber falling by 21.8 percent while chemicals were down 17.1 percent on-year.

Most markets enjoyed a rare advance on bargain-buying Thursday, tracking a Wall Street rally after a series of losses, while dovish comments on future interest rate hikes by Australia’s central bank boss provided a boost to sentiment.  

The dollar resumed its upward march with the Federal Reserve and European Central Bank expected to announce more bumper increases in borrowing costs.

Equities have been ravaged for weeks by fears that global central bank moves to rein in runaway inflation by ratcheting up borrowing costs will spark fresh recessions in some leading economies.

In turn, the greenback has moved ever higher against its major peers as investors flood into the currency hoping for better returns and as a safe-haven hedge against uncertainty and worldwide turmoil.

On Wednesday, the US unit hit a 37-year high against sterling, while it was also closing in on a 32-year peak above 147.60 yen owing to the Bank of Japan’s refusal to tighten its monetary policy, seen as the key driver of that rally.

Still, Japanese officials said they were tracking the price movements and hinted at possible action if things did not improve.

The euro dipped ahead of an expected hefty rate hike by the European Central Bank later in the day.

However, there was some light, where Reserve Bank of Australia head Philip Lowe said the case for a weaker pace of monetary tightening gained momentum as rates rise. The comments provided a little hope that central banks could be ready at some point for a change of course.

Australian bond yields and the country’s dollar fell, while US Treasury yields also slipped.

For now, observers are certain the US dollar will continue to attract strong interest for as long as the Fed keeps ramping up interest rates.

Those views were justified by Vice Chair Lael Brainard, who warned that policymakers would keep hiking rates until they have finally brought prices under control.

“We are in this for as long as it takes to get inflation down,” she said in comments prepared for a conference in New York, adding that she understood this would have a severe impact on families. 

The Fed holds its next policy meeting on September 21, with a third successive 75-basis-point lift forecast.

– ‘Dead-cat bounce’ –

Equity traders mostly followed their US counterparts in returning to buying, with many believing the market had fallen too far too fast.

Tokyo led the gains, helped by data showing the Japanese economy performed better than initially thought in the second quarter, while Sydney was also boosted by the prospect of a slowdown in the pace of Australian rate hikes.

There were also gains in Seoul, Singapore, Wellington, Taipei, Manila, Mumbai, Bangkok and Jakarta.

London rose ahead of an expected announcement by new Prime Minister Liz Truss that she will cap energy bills to fight a cost-of-living crisis. Paris and Frankfurt were also well up.

However, Hong Kong and Shanghai fell.

Still, the mood on trading floors remains downbeat, with OANDA’s Craig Erlam saying: “Given the economic backdrop, this could be nothing more than a dead-cat bounce. Of course, there may be more potential next week if the US delivers a favourable inflation report.”

News that China had extended a lockdown in the megacity of Chengdu added to worries about the world’s number-two economy as officials stick rigidly to their growth-killing zero-Covid strategy.

The shutdowns in China, which have impacted tens of millions across the country, were adding to hefty oil sales as traders fret over the impact on demand.

The commodity was already under pressure owing to bets on a recession caused by bank rate hikes, with both main contracts down around $50 from the peaks seen in the immediate aftermath of Russia’s invasion of Ukraine. They are now around eight-month lows.

And while Brent and WTI rose Thursday, they were nowhere near recovering the previous day’s rout of more than five percent, which came despite Russian President Vladimir Putin warning he would cut off energy to Europe if it imposed price cap sanctions.

“Some bargain-hunting buying is to be expected after a dive like” Wednesday’s, said Vandana Hari at Vanda Insights.

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: UP 2.3 percent at 28,065.28 (close)

Hong Kong – Hang Seng Index: DOWN 1.0 percent at 18,854.62 (close)

Shanghai – Composite: DOWN 0.3 percent at 3,235.59 (close)

London – FTSE 100: UP 0.3 percent at 7262.17

Dollar/yen: UP at 143.83 yen from 143.79 yen on Wednesday

Euro/dollar: DOWN at $0.9983 from $1.0012 

Pound/dollar: DOWN at $1.1487 from $1.1535

Euro/pound: UP at 86.90 pence from 86.74 pence

West Texas Intermediate: UP 0.7 percent at $82.49 per barrel

Brent North Sea crude: UP 0.5 percent at $88.42 per barrel

New York – Dow: UP 1.4 percent at 31,581.28 (close)