(Refiled to add a missing “a” letter in paragraph 5)
By Mike Dolan
Sept 8 (Reuters) – As U.S. markets return from the Labor Day holiday, calm in global markets was broken on Monday and Tuesday after a fresh surge in Japan’s yen to its strongest levels since February.
While there’s persistent nervousness about more intervention by Japanese authorities after the summer’s heavy yen-buying, this move seemed more like repositioning ahead of what looks like an almost certain Bank of Japan interest rate rise next week.
The case for a BOJ rate hike was bolstered on Tuesday after an upgrade to Japan’s second-quarter GDP estimates and the biggest yearly rise in its real wages in five years in July.
There has even been speculation recently that the BOJ could consider a bigger rate rise than the normal 25 basis points, although that remains an unconventional view.
For now, the yen – along with China’s yuan and South Korea’s won – is gaining significant ground on the dollar. Markets may grow a little nervous about the ripple effects of unwinding yen-funded carry trades around world markets. Tokyo’s benchmark Nikkei stock index recoiled almost 2% on Tuesday.
Yet the global economic picture remains very robust. Like Japan, the euro zone’s second-quarter GDP was revised higher this week. Along with the strong U.S. employment picture for August, that all supports the argument for another series of interest rate rises this month – possibly even at the Federal Reserve.
Compounding that rate view is oil’s grind higher back towards $100 per barrel after Iran pledged “economic warfare” on America and Tehran-backed Houthis attacked energy facilities in Saudi Arabia.
Stocks have until now tended to side with the ebullient growth picture – and so has copper. The industrial metal, often seen as a bellwether for world growth, hit an all-time high on Monday, albeit spurred partly by U.S. tariff fears.
But there is clearly going to be tension between such strong growth and rising interest rates to prevent overheating and unfettered stock market gains. As Wall Street returns from holiday today, most stock indices are in the red before the bell.
Meantime, China’s exports rose 25% year-on-year in August, lifting both its global trade surplus and its surplus with the U.S. Elsewhere, Canada’s retaliatory tariffs on U.S. goods took effect on Tuesday, intensifying the trade war between the two neighbors.
Chart of the day
Buoyed by strong overseas appetite for high-tech and AI-related products, exports from the world’s second-biggest economy surged 25% year-on-year in August in U.S. dollar terms, matching forecasts and accelerating from the 23.9% growth in the previous month.
Even though imports surged too, China’s trade surplus rose to $119 billion, and the surplus in the first eight months of the year reached $805.51 billion, putting the annual number on track to top $1 trillion for the second year.
And despite trade tensions between the world’s two biggest economies, China’s trade surplus with the U.S. rose to $29 billion, with exports to the U.S. jumping 34% year-on-year.
Today’s events to watch
• U.S. 3-year note auction (1 p.m. EDT)
• U.S. NFIB small business survey for August
Before you go, check out my latest column on President Trump’s baffling take on U.S. interest rates and trade – and the opportunity it gives Kevin Warsh.
And listen to the latest episode of the Morning Bid daily podcast, where we discuss the yen’s rise, Iran’s threat of “economic warfare” against the U.S. and more.
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(By Mike Dolan)