The yen has depreciated against the won by about 10% since the beginning of the year, which is hurting South Korea's export market. The Bank of Korea even cited a weaker yen as a potential threat to the country's economic viability.
Below is a chart of MSCI South Korea Index Fund
Staying with the theme of the Japanese economy, the yen was able to break below the 100 mark versus the U.S. dollar. A catalyst for the broken barrier lies with the increase in foreign investment on the part of Japanese investors. When the Bank of Japan announced its aggressive policy, many people saw this as an opportunity for a flight of money out of Japan, towards foreign markets. As the yen falls, people sell Japanese bonds, and the interest rate increases as the Bank of Japan had hoped.
The issue with this is that the Japanese bonds, as low as their rates may be, act as a safe haven buy. When people start dumping Japanese bonds, it is a sign that risk assets are seen in a favorable light. The chart below is of DB Japanese Government Bond Futures ETN
As the yen has weakened, the dollar has shown broader strength. Favorable economic data and central bank easing across the globe has given the dollar relative gains. An externality of this has been weaker commodity prices.
The pair below is of United States Oil Fund
The last chart is of SPDR S&P Retail ETF
The report will also tell a lot about the strength of the underlying economy. The economy is driven by the consumer, as consumer spending accounts for around 70% of U.S. GDP. The equity markets have seen a huge run up lately, and if retail sales show that consumer spending is strengthening, then this could be a catalyst for further US equity strength.
At the time of publication the author had no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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- Bank of Japan
- South Korea