Yen rises as policymakers speak out, inflation worries hit world stocks

LONDON, June 10 (Reuters) – The yen rose on Friday after Japanese policymakers made rare comments about its weakness, while world stocks hit a two-week low as worries about U.S. and European inflation and rate rises translated into concerns about global growth.

U.S. S&P futures ticked down 0.17%, indicating a lower open on Wall Street after steep losses on Thursday.

Japan’s government and central bank said they were concerned by recent sharp falls in the yen in a rare joint statement, the strongest warning to date that Tokyo could intervene to support the currency. read more

After a meeting with his Bank of Japan (BOJ) counterpart, top currency diplomat Masato Kanda told reporters that Tokyo will “respond flexibly with all options on the table”.

The yen has been ploughing 20-year lows against the dollar and seven-year troughs against the euro on expectations the BOJ will continue to lag behind other major central banks in exiting stimulus policy.

“Generally if you look back at BOJ behaviour, if they say they will take appropriate action that is seen as the top level of intervention they go through before physical intervention,” said Adam Cole, chief currency strategist at RBC Capital Markets.

Meanwhile, the ECB said on Thursday it would deliver its first interest rate rise since 2011 next month, followed by a potentially larger move in September. read more

Analysts at Deutsche and Morgan Stanley lifted their euro zone rate hike forecasts on Friday. read more

Investors expect the Federal Reserve to raise interest rates by 50 basis points next week, especially if U.S. consumer price data on Friday confirms elevated inflation.

The consensus forecast sees a year-over-year inflation rate for May of 8.3%, unchanged from April.

“A lot of focus is on this current number, it’s not going to be a big move,” said Matthias Scheiber, global head of portfolio management for multi-asset solutions at Allspring.

“I don’t think it will derail what central banks currently have on their minds.”

However, rate rises may hit growth, Scheiber said, adding that he had turned slightly underweight on equities in recent weeks as a result of this concern.

MSCI’s world equity index (.MIWD00000PUS) fell 0.54% to its lowest since May 26, and was heading for a fall of more than 2%for the week.

The dollar fell 0.45% to 133.77 yen and but rose 0.18% to a three-week high against a basket of major currencies . The euro fell 0.23% to 2-1/2 week lows at $1.059.

European stocks (.STOXX) fell 1.5% to three-week lows.

It was the 17th week in a row of outflows for European equities in the week to Wednesday, according to BofA, with $2.1 billion leaving the space, as the sector has been hit hard by the Russia-Ukraine war. read more

Pressure is rising on other central banks to tighten, with the BoE and Sweden’s Riksbank expected to hike rates again next week.

Britain’s FTSE 100 (.FTSE) fell 1.2% to 3-week lows.

The Bank of England said on Friday it was satisfied that Britain’s top banks could be shut down without putting at risk the stability of the financial system or disrupting customers. read more

The two-year U.S. Treasury yield , which rises with traders’ expectations of higher fed fund rates, continued its climb, hitting its highest since Nov 2018 at 2.862%.

The yield on benchmark 10-year Treasuries dipped to 3.035% compared with its U.S. close of 3.042%.

Ten-year German government bond yields weakened to 1.413%, after hitting their highest since 2014 on Thursday.

Italy’s 10-year yield rose to its highest since 2018 at 3.78% on Friday before easing to 3.73%. EUR/GVD

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.9%, weighed down by a 1.2% drop in resources-heavy Australia (.AXJO) and a 1.1% retreat in South Korea (.KS11). Japan’s Nikkei (.N225) fell 1.5%.

However, continued strong buying by foreign investors and cautious hopes of regulatory easing on tech firms lifted China stocks, despite news that the cities of Beijing and Shanghai were back on COVID-19 alert.

China’s blue-chip CSI300 index (.CSI300) was up 1.5%, while Hong Kong shares (.HSI) trimmed earlier losses to be off 0.2%.

Oil rose and was on track for another weekly gain supported by solid fuel demand in the United States, although fresh COVID-19 alerts in Shanghai and Beijing curbed gains.

U.S. crude gained 0.75% to $122.42 a barrel. Brent crude rose 0.88% to $124.13 per barrel.

Spot gold fell 0.36% to $1841.07 per ounce.

Additional reporting by Dhara Ranasinghe in London, Stella Qiu in Beijing and Alun John in Hong Kong; Editing by Kim Coghill, Elaine Hardcastle and Chizu Nomiyama

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