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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Financial markets at risk of ‘sharp correction’; US GDP revised high – as it happened

Elon Musk SpaceX United States Japan Shunichi Suzuki BOJ the Bank of Japan
The City of London's financial district skyline
The City of London's financial district skyline Photograph: Tim Grist Photography/Getty Images

Closing post

Time to wrap up…

The Bank of England has warned that financial markets are at risk of a “sharp correction” in the future, as investors are only focusing on good economic news.

The BoE says:

The prices of many assets such as shares and bonds remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets are continuing to expect the economy to recover and inflation to fall.

They are placing less weight on risks, such as geopolitical developments or continued high inflation, that might cause weaker growth or interest rates to stay higher than expected.

These risks make it more likely that there could be a sharp correction in asset prices that could ultimately make it more costly and difficult for UK households and businesses to borrow.

In its latest financial stability report, the BoE also warned that millions of UK households who are paying relatively low mortgage rates will see monthly repayments jump in the next two years.

It also flagged the risk that global elections could destabilise the UK financial system…. while China’s property slowdown is another threat.

In other news…

The US economy grew a little faster than thought in the first quarter of the year, by an annual rate of 1.4%.

Japan has issued fresh warnings over the weakness of the yen, which has hit a 38-year low against the US dollar this week at around 160 yen to the $.

Elon Musk’s SpaceX has been valued at about $210bn based on the value of insider shares being sold in a tender offer,

Updated

US pending home sales fall in May

There are new signs of weakness in the US housing market today.

Contracts to buy U.S. previously owned homes unexpectedly fell in May, by 2.1%, indicating that high mortgage rates and expensive homes are deterring buyers.

The National Association of Realtors (NAR) reported that pending home sales fell in the densely populated South and the Midwest on a monthly basis, but rose in the Northeast and West.

Year-over-year, all U.S. regions registered reductions.

“The market is at an interesting point with rising inventory and lower demand,” said NAR chief economist Lawrence Yun, adding:

“Supply and demand movements suggest easing home price appreciation in upcoming months. Inevitably, more inventory in a job-creating economy will lead to greater home buying, especially when mortgage rates descend.”

Labour shadow business secretary has said the party would rather have stability in the UK’s relationship with the Europe than try to seek accelerated economic growth by rejoining the EU’s single market or customs union.

Addressing the British Chambers of Commerce (BCC) conference on Thursday, Jonathan Reynolds acknowledged that Brexit had been “very difficult for businesses” because it erected trade barriers, but said reopening the debate would be worse.

With less than a week to go until polls open in the general election, Reynolds was trying to woo business leaders at the London event with a pitch that emphasised policy stability and encouraged businesses to invest.

More here.

Back in the UK, a former Bank of England policymaker has predicted the central bank could cut interest rates at its next meeting in August.

Michael Saunders, who served on the Monetary Policy Committee from 2016 to 2022, believes the BoE would start to lower borrowing costs if inflation and wage data align with its forecasts.

Saunders told the Reuters Global Markets Forum (GMF) today:

“They have clearly signalled they are willing to cut soon if data are okay.

“If so, I would expect the rest of the internal (members of the BoE MPC) to move as a bloc to vote for a cut.

The US GDP report shows that America’s manufacturing sector shrank by 1.1% in Q1.

The services sector grew by 1.9%, though, while government added 2.3% more value.

Despite the small upgrade to US growth in January-March, the economy still slowed compared with the October-December.

Richard Flax, chief investment officer at Moneyfarm, says:

“The third reading on US first quarter GDP came in at an annualised 1.4% according to revised figures, up from the predicted 1.3%, but lower than Q4 2023’s strong print of 3.4%. This tepid growth continues to highlight concern of a broader economic slowdown.

“The increase in real GDP primarily reflected increases in consumer spending, residential fixed investment, non-residential fixed investment, and state and local government spending.

“Looking ahead, forecasts suggest a potential rebound in GDP for the second quarter, with estimates pointing to growth rates of 3% or more, similar to the robust performance seen in the latter half of 2023. However, several factors could temper expectations for the rest of the year, including the state of inflation, high interest rates, and the impending presidential election. All these factors may force businesses to adopt a cautious stance on new investments.”

The number of Americans filing new claims for jobless support has dipped, by 6,000.

There were 233,000 fresh ‘initial claims’ for unemployment support last week, down from 239,000 in the previou seven days.

Updated

Today’s US GDP report also shows that Americans earned, and saved, a little less than previously estimated in the first quarter of the year.

Disposable personal income increased $240.2 billion, or 4.8 percent, in the first quarter, a downward revision of $26.6 billion from the previous estimate. Real disposable personal income increased 1.3 percent, a downward revision of 0.6 percentage point.

Personal saving was $777.3 billion in the first quarter, a downward revision of $19.3 billion from the previous estimate. The personal saving rate—personal saving as a percentage of disposable personal income—was 3.8 percent in the first quarter, the same as the previous estimate.

US economy grew by 1.4% annual rate in Q1

Just in: the US economy grew a little faster than previously thought in the first quarter of this year.

New data from the Bureau of Economic Analysis show that US gross domestic product increased at an annual rate of 1.4% in the first quarter of 2024.

That’s the equivalent of growing by 0.35% quarter-on-quarter….and is up from the prevoius estimate of 1.3% annualised growth.

The BEA says the increase primarily reflected increases in consumer spending, housing investment, business investment, and state and local government.

But, a fall in inventory investment weighed on GDP, as did a rise in imports.

This chart shows why the Bank of England has concerns about private equity risk management (see earlier post)…

Here’s economist Julian Jessop of the Institute of Economic Affairs on today’s financial stability report:

Full story: Global wave of elections could hit UK financial system, warns Bank of England

Uncertainty caused by a global wave of elections, starting this weekend in France, risks destabilising the UK’s financial system, the Bank of England has warned.

Officials are concerned about the kind of policies that newly elected governments may enforce in large economies, including the US, where Donald Trump is vying for another term as president in the run-up to the election in November.

The French president Emmanuel Macron’s shock announcement of a parliamentary election, with a first round of voting on 30 June and Marine Le Pen’s far-right National Rally party forecast to make significant gains, had shown how political uncertainty could impact economic growth forecasts and cause volatility in financial markets, affecting government debt prices, the Bank’s financial policy committee (FPC) said.

More here.

There’s no shortage of newsy lines in today’s financial stability report.

Another one, is that the Bank of England believes that risk management in the private equity sector needs improving.

The BoE says an investigation of the sector showed it was facing challenges from higher borrowing costs (because increases in interest rates have hit borrowers who loaded up on debt when it was cheap).

The Bank says:

Although the [private equity] sector has been resilient so far, it is facing challenges in the higher rate environment. These manifest in refinancing risk as debt matures, and an increased drag on performance from higher financing costs.

In response, Michael Moore, chief executive of the BVCA (British Private Equity & Venture Capital Association), says:

The Bank has rightly highlighted the long-term stability and resilience of the private equity industry and the vital role it has played in the UK economy for over 40 years, and we welcome their acknowledgment of the importance of the sector to the economy.

Many of the Bank’s concerns are already being addressed through new regulatory activity by the FCA, and we at the BVCA remain highly engaged in these processes.

Over in the US, retail giant Walgreens Boots is planning to close some underperforming US stores and cut its profit forecasts today.

Walgreen Boots now expects to make an adjusted profit of $2.80 to $2.95 per share for its financial year ending August, compared with its $3.20 to $3.35 per share forecast in March.

The company says it is finalizing a “significant multiyear footprint optimization program” to close certain underperforming US stores.

Chief executive officer Tim Wentworth says Walgreen Boots continues to face “a difficult operating environment”, due to the pressures on US consumers.

He adds:

“Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of healthcare. We are addressing critical issues with urgency and working to unlock opportunities for growth.

Many of these actions will take time, but I am confident that we have the right team and the right strategy to lead a business turnaround for the Walgreens that our customers and patients need.”

Today’s Financial Stability Report recognises the forthcoming French elections as a potential geopolitical risk, points out Professor Costas Milas, of the University of Liverpool’s management school:

In light of the forthcoming French elections, the French cost of borrowing continues to rise -albeit slightly- over the past week as does the Italian one.

My brand new piece for the LSE Business Review blog looks at the rising political uncertainty in France and assesses the risk of contagion effects in Europe and the UK through the banking channel. European and British banks have a notable exposure to French public and domestic debt (around 10% their total exposure worldwide), which (according to the Chart in the piece) has increased over time.

Something for ECB’s and BoE’s monetary policymakers to keep an eye on over the next few days and weeks…

Updated

BoE: China property slowdown could post spillover risks

The Bank of England also warns that “significant downside risks remain” from China’s property market.

Today’s financial stability report points out that activity in the mainland Chinese residential property sector continues to decrease, with the prices of new and existing homes falling this year:

Disorderly defaults by property developers have been avoided so far, the Bank of England says, even though some large Chinese property developers have missed bond payments without agreed extensions.

Chinese authorities have put various measures into place to support the housing market, which has helped support housing demand.

The Bank warns, though, that the ongoing market adjustment will weigh on China’s economy for some time – and could potentially spill over to the UK economy, saying:

The adjustment in the property sector, alongside broader structural trends, is likely to weigh on growth in China for some time. Property accounts for a significant proportion of household wealth in China; much higher than in the US, for example. That means falls in sales and residential property prices are likely to continue to impact Chinese consumption and growth.

There have been limited spillovers to the UK so far from the adjustment in mainland China’s property market. However, significant downside risks remain. More widespread crystallisation of risks in mainland China could lead to spillovers to the UK and other countries, and could be larger if the crystallisation of property sector vulnerabilities were to spread to other sectors in the Chinese economy. Risks could spill over to the UK financial system through channels including weaker trade, financial markets, and global risk sentiment.

Today’s Bank of England’s report shows high borrowing costs still pose a threat to the stability of the financial system, points out Karim Haji, global and UK head of financial services at KPMG.

Haji adds that banks need to keep supporting customers who need help:

“While there are signs that a brighter economic outlook is starting to feed through to resilient consumers and businesses, the Bank of England’s report shows high borrowing costs still pose a threat to the stability of the financial system.

The good news is UK banks are in rude health, with strong capital and liquidity positions allowing them to support people even if the economy does worse than expected. It is incumbent on them to continue supporting vulnerable customers.”

BoE: Elections to add to financial volatility

The Bank of England is concerned that the flurry of elections taking place this year could cause financial instability.

Today’s report says:

Geopolitical risks remain high and there is policy uncertainty associated with elections set to take place globally. This could make the global economic outlook less certain and lead to financial market volatility.

The Bank cites the drop in French government bond prices, and shares in Paris, this month after Emmanuel Macron called snap parliamentary elections.

They say:

Markets responded to the unexpected announcement that French parliamentary elections would be held on 30 June and 7 July. For example, the spread between French and German 10-year government bond yields rose to its highest level since 2017.

The US presidential elections, in November, are also an obvious source of risk and uncertainty, with Joe Biden and Donald Trump due to face off in a debate tonight.

The City has been unspooked by the UK election next week, though, with JP Morgan suggesting that a Labour election victory will be a “net positive” for financial markets.

Updated

If markets suffer a sharp correction, it would hurt the cost and availability of finance to the real economy through two main channels.

The BoE says.

First, a sharp market correction would make it more costly and difficult for corporates to refinance maturing debt, including by reducing the value of collateral. This is particularly relevant given the large proportion of leveraged lending and high-yield market-based corporate debt that is due to mature by the end of 2025.

Second, it could interact with vulnerabilities in market-based finance, which may amplify the correction. For example, it may cause large losses for leveraged market participants, which could further reduce risk appetite, or it may lead to a spike in liquidity demand and a deterioration in the functioning of core markets.

BoE: full impact of higher interest rates has not yet reached all mortgagors

Millions of UK households will be hit by rising mortgage costs over the next two years, the Bank of England says, even though interest rates may have peaked.

Its new Financial Stability Reprt shows that around 30% of mortgagors are likely to see mortgage costs rise by more than £100 a month by the end of 2026.

That’s because borrowers will continue to come to the end of their fixed-rate deals, meaning they’ll have to refinance onto higher rates.

Today’s Report says:

With continued strong income growth and low unemployment, the aggregate amount of debt held by UK households relative to their income has fallen further since Q1. That said, many UK households, including renters, are still facing pressures from the increased cost of living and higher interest rates.

The share of households spending a high proportion of their income on mortgage payments is still expected to increase slightly over the next two years. But the overall share of households who are behind in paying their mortgages remains low by historical standards.

It adds:

Over the next four years, the vast majority of fixed-rate mortgagors were expected to refinance, most at rates higher than they currently paid. A smaller group, predominantly those on variable-rate mortgages, could see a reduction in their monthly payments.

The Bank also predicts that mortgage arrears will increase further, but are likely to remain well below their early 1990s and post-GFC peaks of 4.0% and 2.4%, respectively.

This is despite interest rates having risen by more since 2021 Q4 than in past tightening cycles, it adds.

Updated

The Bank of England also warns that some firms will struggle with the impact of higher interest rates in the years ahead.

But most UK businesses remain ‘resilient’ to the economic outlook, today’s financial stability report says:

We still expect most UK businesses to continue to be resilient to the economic outlook, including high interest rates. However some firms are likely to struggle with higher borrowing costs in the coming years.

Firms with a large amount of market-based debt which still needs to be refinanced, and where a high proportion of income is being spent on repayments, are likely to come under the most pressure.

Updated

Financial markets at risk of 'sharp correction', warns Bank of England

Newsflash: The Bank of England has warned that financial markets remain at risk of a sharp correction.

In its latest financial stability report, the BoE says that high inflation, or geopolitical risks, could trigger a selloff.

The Bank says risks to the UK financial system are “broadly unchanged” since the first quarter of the year.

But some asset prices have continued to rise, it points out, while the risk of a sharp correction persists.

European markets are up around 8% so far this year, while the US Nasdaq Composite index has surged by 18%.

The report, which is designed to track the stability of the financial system, says:

The prices of many assets such as shares and bonds remain high relative to historical norms, and some have continued to rise. This suggests that investors in financial markets are continuing to expect the economy to recover and inflation to fall. They are placing less weight on risks, such as geopolitical developments or continued high inflation, that might cause weaker growth or interest rates to stay higher than expected.

These risks make it more likely that there could be a sharp correction in asset prices that could ultimately make it more costly and difficult for UK households and businesses to borrow.

The report also warns that

  • Global risks are material, including geopolitical risks, which remain high.

  • Overall, UK households and businesses have remained resilient to the impact of higher interest rates.

  • The UK banking system is strong enough to support households and businesses, even if the economy does worse than expected.

Updated

The French stock market has dipped this morning, with the CAC40 share index down 0.2%.

Traders are jittery ahead of the first round of voting in the national assembly elections this weekend.

Joshua Mahony, chief market analyst at Scope Markets, says:

European markets have kicked off a somewhat indecisive start to the day, with the German DAX providing the one glimmer of light as the likes of the FTSE 100 and CAC head lower.

While we saw early gains for French stocks, the fact that we are seeing them fade once again comes as no surprise as we approach the weekend election. Yesterday saw yet another poll that pointed towards further gains for the far-right National Rally party, with a Macron loss becoming increasingly likely.

Nonetheless, while the Bloomberg poll of polls has NR and its allies at 36% of the vote, the fact that this remains well below the 50% marker highlights the fact that we will likely have to wait until next Sunday to find out the result. With that in mind, traders should expect a jittery period ahead, with the fears of a fresh surge in borrowing costs and financial instability driving potential CAC and euro weakness.

Updated

Over in Tokyo, the government has warned that high interest rates in the United States and Europe are hurting the yen, and risking economic damage.

In a monthly report, a cabinet office official flagged that “fluctuations” in the marketss should be watched closely.

The report says:

“The Japanese economy is recovering at a moderate pace, although it recently appears to be pausing.

“The economy could face downside risks from the effects of continued high interest rate levels in the United States and Europe.

Full attentions should be given to fluctuations in the financial and capital markets.”

Yen/dollar rate of 165 could be new line in the sand

Some analysts are forecasting that Tokyo could intervene to support the yen if it fell as low as 165 to the dollar.

ING point out that the intervention two months ago was triggeed by a 10 yen move in USD/JPY.

They told clients:

In April, USDI/JPY had risen from a low of 150 to a high of just below 160 over a little less than a month when Japan intervened…

In the past 30 days, the low was 154.60, which would by the same logic place the intervention level at 164/165.

The yen is still trading over 160 to the dollar, above this new “line in the sand” of 165….

UK labour market cooling as job vacancies fall

The number of job openings at UK companies has dropped by a fifth compared with a year ago, hiring platform Indeed reports.

In its Mid-Year Labour Market Update, Indeed shows job postings are slowing as the labour market cools.

The technology industry, and the beauty & wellness sector, are among those seeing the fastest slowdown in hiring.

The report also found, though, that wage pressures remain strong, particularly in lower-paid roles.

Here’s the key points:

  • Foreign jobseeker interest is up— the share of searches for UK jobs from abroad is up 40% from its pre-Covid average.

  • Roles remain hard-to-fill despite foreign interest - the jobs foreign jobseekers are most drawn to are software development, engineering and mathematics. However, engineering and software development roles remain some of the hardest-to-fill in the UK, meaning barriers remain in hiring this talent.

  • Wage pressures still persist — Despite the labour market cooling, the Indeed Wage Tracker shows that posted wage growth rose to a four-month high of 6.5% year-on-year in May, driven by lower-paid roles, with childcare wages up the most at 8.6% year-on-year.

  • Flexibility is a mainstay — the share of job postings mentioning remote or hybrid work has remained steady at around 15% of job postings in 2024, up from 13% in May 2022. Around 2.4% of jobseeker searches contained remote/hybrid terminology with the share remaining stable since 2022.

Jack Kennedy, Indeed’s senior economist, says:

“The UK labour market has continued its adjustment in recent months, though it remains somewhat tight and still competitive for employers in many sectors. Highly skilled jobs tend to always be harder to recruit for as they are naturally relevant to a smaller candidate pool. However, there is strong foreign interest in some of these jobs, meaning UK businesses may want to look at jobseekers from outside the country to fill gaps.

While lower-paid jobs are generally easier to recruit for as the candidate pool is larger, persistently higher inactivity post-pandemic and post-Brexit immigration policy have made it harder than it used to be for employers to fill these roles. Tackling inactivity, a longer-term skills strategy and the role of immigration in addressing labour shortages will be agenda items for the elected government.

The London stock market is a little subdued this morning, with the FTSE 100 down 8 points or 0.1% at 8217 points.

Packaging firm DS Smith are the top riser, up 6.7%. Its takeover by US rival International Paper appears to be on track, after Brazil’s Suzano dropped its plans to merge with International Paper.

Pharmaceuticals firm GSK is the top faller, down 5.2%, after US health officials recommended restricting vaccination with its RSV vaccine to people who are older and more at risk. That could reduce the market for the UK drugmaker’s blockbuster shot.

SpaceX’s new valuation of $210bn is a record for an American private company:

Riksbank leaves interest rates on hold

Just in: Sweden’s central bank, the Riksbank, has left interest rates on hold at 3.75%.

But it also hints that rates could be cut as many as three times in the second half of 2024 if inflation prospects remain the same.

The Riksbank explains:

Inflation is close to the target and economic activity is weak. The Executive Board considers that monetary policy should be adjusted gradually, and has decided to hold the policy rate unchanged at 3.75%.

Wet weather earlier this month has also slowed sales growth at British supermarkets, new data shows.

Market researcher NIQ said sales at UK supermarkets rose 1.1% in the four weeks to 15 June year-on-year. That’s a slowdown on the 3.3% growth reported a month ago.

The wet weather may have encouraged shoppers to buy groceries online rather than braving the shops; in-store sales fell 0.9% in the month to 15 June, while online sales increased by 3.7%.

H&M shares slide after poor weather hits June sales

Shares in Swedish clothing retailer H&M have tumbled 13% after reporting earnings that missed expectations this morning.

H&M also predicted a drop in June sales, suggesting they could fall by 6% in local currencies against the same period last year, partly due to poor weather in many key markets.

It told shareholders:

The unstable weather in many of the H&M group’s large markets at the start of June 2024 had a negative impact on sales, but sales recovered as the weather normalised at the end of the month.

CEO Daniel Ervér says H&M group’s profitability performance during the first half of the year was strong. He warns, though, that external factors such as material costs and foreign currency rates, will have a more negative impact than expected in the second half of the year.

Profits slide at Halfords

Profits have dropped at motoring and cycling retailer Halfords.

Halfords blamed continuing declines in the markets for car tyres and for cycling equipment, as consumer demand for big ticket purchases wanes.

It made pre-tax profits of £19.9m in the last year, a 45% drop on the £36.2m the previous 12 months.

On an underlying basis, though, profits before tax were in line with market expectations at £36.1m, down 18%.

Halfords reports that the cycling market contracted faster than expected, leading to more promotional activity to shift stock.

Elevated cost inflation continued to be a significant headwind, it adds.

Looking ahead, Halfords predicts that market volumes for cycling and consumer tyres will fall in the current financial year:

Trading since the start of FY25 has continued to be soft, impacted by low consumer confidence around big ticket, discretionary purchases, and poor spring weather, which has reduced store footfall and affected sales of both cycling and staycation products.

Whilst we continue to expect market share gains in the year ahead, based on what we are currently seeing we now expect market volumes to decline in FY25 in cycling and consumer tyres, and to remain broadly flat in motoring servicing and retail motoring products.

Updated

Currys: AI is most exciting tech cycle since the iPad

It’s also a busy morning for UK retailers, with several companies updating the stock market on their performance.

Electricals seller Currys has reported a 10% rise in adjusted profit before tax, to £118m, but revenues have dropped 2%.

Currys is hoping for a further boost from artificial intelligence, telling shareholders that the coming wave of AI led technology could be the most exciting tech cycle since the Apple iPad in 2010.

Alex Baldock, Currys CEO, says:

Encouraged as we are by our progress, we know we can go further. For one thing, we expect AI-powered technology to be the most exciting new product cycle since the tablet in 2010. With our partnerships, scale and expert colleagues to demystify AI, we’re best-placed to benefit.

Updated

Japan’s Nikkei stock market has fallen by 0.8% today, losing 325 points to 39,341 points.

A weaker yen is good for Japan’s exporters, so there may be some anxiety that Tokyo could intervene to drive the currency up again.

SpaceX tender offer said to value company at $210bn

Elon Musk’s SpaceX has been valued at about $210bn based on the value of insider shares being sold in a tender offer, Bloomberg reports today.

SpaceX will sell insider shares at $112 apiece in a tender offer, a higher-than-expected price, that boosts the value of Elon Musk’s space and satellite company above its previous valuation of $180bn.

SpaceX is considered one of the most profitable start-ups in the world, Bloomberg says, adding:

The firm, which was founded in 2002 by Tesla Inc CEO Elon Musk, is one of the most prominent private manufacturers of spacecraft and satellites. It also offers satellite-based internet services through its Starlink subsidiary.

The firm also holds a slew of contracts from NASA to provide spacecraft and crew equipment for orbital missions and support for the International Space Station.

Earlier this month, SpaceX recorded the first fully successful test flight of its mighty space rocket Starship, when it splashed down successfully in the Indian Ocean.

Japan issues fresh warnings against sharp yen falls

Japanese finance minister, Shunichi Suzuki, pledged today that authorities would take necessary actions on currencies after the yen slid to a 38-year low against the dollar.

Japanese authorities are “deeply concerned” about the effect of the yen’s drop on the economy and are watching foreign-exchange moves with a high sense of urgency, Suzuki told reporters.

He said:

“It’s desirable for exchange rates to move stably. Rapid, one-sided moves are undesirable. In particular, we’re deeply concerned about the effect on the economy.

We are watching moves with a high sense of urgency, analysing the factors behind the moves, and will take necessary actions.”

Introduction: Yen at 38-year low against the dollar

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Pressure is piling on Japan’s authorities to intervene in the foreign exchange markets, after the yen weakened to a 38-year low against the US dollar.

The yen, which has been ailing for some months, has weakened to as low as 160.8 to the dollar, for the first time since 1986.

That takes the yen below its low in April, when Tokyo was forced to intervene in the foreign exchange markets, burning through ¥9.8tn (£48bn) to prop up their currency.

The yen’s weakness is due to the interest rate differential between Japan and the rest of the world. While most central banks hiked rates aggressively over the last coule of years, the Bank of Japan (BoJ) only ended its negative interest rate policy this spring, and has pegged borrowing costs to a range of 0%-0.1%.

Yesterday, Japan’s top currency official, Masato Kanda, told reporters that the government was “seriously concerned and on high alert” about the yen’s decline and would respond to any “excessive” moves.

This week’s weakness has prompted speculation that fresh intervention may be required.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, says:

The only thing that prevents the yen from a further fall is the direct intervention risk. But other than that, the yen deserves to lose more blood. One-year risk reversals, which show how traders feel about the yen over a longer time, hint that they’re still kind of excited about the yen compared to the dollar.

But that excitement is fading fast as the Bank of Japan (BoJ) keeps delaying its intervention plans meanwhile the Federal Reserve delays its rate cutting plans

Another option would be for the BoJ to raise interest rates, of course, and try to strengthen the yen organically that way.

This may not be too controversial, since the weak yen is hitting Japanese households hard, explains Kathleen Brooks, research director at XTB, adding:

They must deal with rising inflation, as import prices surge, which is also weighing on consumption. Wage growth is also below inflation, which is adding pressure to the Japanese authorities to act.

Some argue that the BOJ need to adjust monetary policy and narrow the interest differential with the US and the rest of the world, as that is the most effective way to boost the yen. However, it would also require a shift in priorities at the BOJ, moving away from keeping yields low and stable, to a normalization of monetary policy like that in the US and across Europe.

The agenda

  • 8.30am BST: Swedish Riksbank interest rate decision 8.30am

  • 10.30am BST: Bank of England Financial Stability Report

  • 10am BST: Eurozone consumer and economic confidence statistics for June

  • 1.30pm BST: US GDP Q1 (final estimate)

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