Yen’s surge hits Japan’s exporters in June

Asia (including Japan)

Having fallen heavily in the wake of the UK’s shock decision to quit the European Union (EU), Asian markets experienced a slight rebound as June drew to a close. Japan’s Prime Minister, Shinzo Abe, attended an emergency meeting between the Government and the Bank of Japan (BoJ) to discuss the implications of the UK’s exit from the EU. The BoJ will provide funds to ensure that companies that require capital, including Japanese companies in the UK, can continue to operate stably. Meanwhile, Japan’s Government pledged to make “concerted efforts” to ensure that Brexit does not affect Japan’s real economy. Nervous investors drew some solace from the Government’s assurance that it would take action to support financial markets if necessary.

The yen – which is widely regarded as a safe-haven investment during troubled times – surged to its highest level against the US dollar since mid-2014. The yen’s appreciation affected sentiment towards Japanese exporting companies, and the Nikkei 225 Index and the Topix Index both fell by 9.7% during June. Since the start of the year, the two indices have lost 18.2% and 19.5% respectively. In comparison, the TSE Second Section Index – which has a greater focus on medium-sized companies – fell by 5.9% during June and by 12.5% since the beginning of 2016.

Japan’s exports fell at an annualised rate of 11.3% during May. However, the country’s economy expanded more strongly than initially calculated during the first quarter of 2016, posting annualised growth of 1.9% compared with earlier estimates of 1.7%. Nevertheless – and as expected – Japan’s leaders postponed a scheduled increase in consumption tax from 8% to 10%. The rise was planned to take effect in April next year, but has now been delayed until the end of 2019.

In a bid to provide a boost for South Korea’s flagging economic growth, policymakers at Bank of Korea surprised investors with an unexpected cut in interest rates. The central bank’s key interest rate was cut from 1.50% to 1.25% during June, raising speculation that there might be further cuts to come. The Kospi Index moved 0.7% lower over June as a whole, but has edged 0.5% higher since the start of the year. Elsewhere in the region, the Reserve Bank of Australia (RBA) maintained its main interest rate at 1.75% during June. The benchmark ASX All Ordinaries Index fell by 2.5% over the month.