July was a month of ups and downs for the yen . Having surged against the US dollar in the wake of the UK’s decision to leave the European Union (EU), the yen was subsequently dragged down by mounting speculation that the Bank of Japan (BoJ) would increase their stimulus measures.
As it transpired, BoJ policymakers elected to leave their programme of government bond purchases unchanged, although they doubled purchases of exchange-traded funds, and their decision triggered renewed demand for the yen towards the end of the month. The BoJ’s quarterly Tankan survey of business sentiment showed that confidence amongst Japan’s large manufacturing companies has been dampened by the yen’s strength.
Japan’s economy is expected to expand more slowly than previously estimated. The country’s government cut its growth forecast for the current fiscal year from 1.7% to 0.9%. Inflation is expected to grow by 0.4%, compared with the government’s previous prediction of 1.2%. The downgrades fuelled hopes that the government will introduce further stimulus measures to provide support for the struggling economy.
The benchmark Nikkei 225 Index rose by 6.4% during July, while the Topix Index climbed by 6.2% and the TSE Second Section Index rose by 3%. Since the start of the year, the Nikkei 225 Index and the Topix Index have fallen by 12.9% and 14.5% respectively; in comparison, the TSE Second Section Index – which is less exposed to the big exporters – has posted a year-to-date decline of only 2.8%.
Shares in Japanese technology company Nintendo surged during July following the successful release of the new “Pokémon Go” game. However, investors’ enthusiasm was somewhat dampened following a statement from Nintendo that the game’s effect on the company’s earnings was likely to prove “limited”. Elsewhere, messaging app Line Corporation performed strongly in its stock-market debut on the Tokyo and New York stock exchanges during the month.
The Reserve Bank of Australia (RBA) maintained its key interest rate at 1.75% during July. Australia’s economy continues to expand; while business investment has experienced a substantial decline, other elements of domestic demand – as well as exports – have grown at a rate that is “at or above trend”. Policymakers had previously implemented a cut of 0.25 percentage points at their May interest-rate-setting meeting. The ASX All Ordinaries Index rose by 6.3% during July and has climbed by 5.6% over the year to date.