NIKKEI225 Drops 3.1% Overnight on Fed and Trump Comments

The Nikkei stock index falls sharply as Japanese exporters’ stocks are hit by a stronger yen.

The USD/JPY fell to 155.36 temporarily as comments from the Fed on Wednesday and Trump on Tuesday took effect. The Federal Reserve Gov. Waller made comments indicating the Fed could start cutting rates by September.

While Trump called the Japanese currency too weak and the U.S. dollar too strong during an interview. Both comments took the yen higher from 158.80 on Tuesday to the recent peak of 155.36 today.

Exporter stocks were hit the worst from the strengthening yen. Toyota, Mazda, and Mitsubishi have fallen 3.5%, 5.2% and 3.9% respectively. To add to the stock market’s woes, Trump also added that Taiwan had taken away chipmaking business from the U.S. and that the island nation should pay for U.S. protection.

Chipmaker investors are also concerned that the current industry’s regulations may tighten, causing a decrease in profit margins. Chipmaker TSMC stocks fell a combined 7.8% over the last 2 trading days.

Central Bank Meeting

The BoJ is holding its scheduled monetary policy meeting on July 30 and 31. There have been various calls from Japanese official to protect the yen. Mot recently, Kono Taro, digital transformation minister and tipped for potential prime minister candidate, called on the BoJ to raise rates.

He stated that the yen is too cheap and needs to “be brought back”, the Nikkei news outlet reported he requested the central bank raise rates to protect the yen and reduce the cost of food and energy.

The central bank meeting comes after data from the BoJ suggests intervention in the forex market last Thursday and Friday. The current account balance, released Tuesday, showed we can expect a liquidity drain of approximately 2.74 trillion yen ($17.3 billion).

The BoJ has intervened in the forex market regularly, coinciding with dips in the yen to below 161 against the dollar. The market has come back on each occasion to only retest the same level of 161.00 again.

It seems likely at this point that the central bank may find it all but impossible to raise rates. In this way, it protects the yen which would benefit from higher rates and fend off rising inflation.