EBC Markets Briefing | Yen inched down; Qualcomm shares hit a record high

The yen lost ground on Tuesday as talks to end the war in the Middle East showed no signs of progress, fanning fears that interest rates may need to stay higher to tackle persistently high inflation.

Having ⁠supposedly spent nearly $63.7 billion in the current round of interventions, analysts say Tokyo may be counting on Bessent's visit to Japan to deliver an additional jolt.

Japan can conduct only two more interventions by November to maintain its status as a freely floating exchange rate, according to the IMF's classifications, which will likely weigh on the yen.

While a stronger yen typically erodes the profit margins for Japanese exporters and makes them less competitive, a weaker yen raises the cost of energy, food, and raw materials.

The main driver is still the US-Japan bond yield spread, which has fuelled the so-called yen carry trade. The BOJ is therefore put under pressure to hike interest rates.

The central bank held rates in April, with several members flagging possible hikes as soon as the next meeting. Markets is pricing in two 25-bp hikes by the end of this year.

The yen surged earlier this month, but empirically, warnings of intervention alone cannot trigger a fundamental reversal. Given that, a retest of 160 per dollar looks inevitable.

Asset recap

As of market close on 11 May, among EBC major products, Qualcomm shares led gains, extending a powerful multi-session rally rooted in its fiscal Q2 results.

China investors were counting on the summit between Xi and Trump. Even without major breakthroughs on key issues, a broadly constructive outcome is seen keeping the positive market sentiment intact.

US natural gas prices after Trump's flat rejection of Iran's peace framework sent them higher. Only two LNG carriers transited the Strait in April compared to roughly 70 vessels per day before the war.

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