Invesco CurrencyShares Japanese Yen Trust (ARCA: FXY)

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The fund seeks to reflect the price in USD of the Japanese Yen. The sponsor believes that, for many investors, the shares represent a cost-effective investment relative to traditional means of investing in the foreign exchange market.

Invesco CurrencyShares Japanese Yen Trust

As gold rips through record highs above $3,500 an ounce, another classic safe haven is quietly staging one of its strongest comebacks in over <a href="https://www.benzinga.com/topic/japan">a decade: the Japanese yen.</a>
With global investors gripped by tariff fears, central bank politicization, and a deteriorating U.S. economic backdrop, Japan's currency has emerged as a stealth winner, rallying 12% year-to-date through April 22—its strongest surge since 2010. 
On Tuesday, the USD/JPY pair fell to 140.45, marking its lowest level since September 2024.
A risk-off trade that long seemed forgotten—long yen, short U.S. equities—has returned to form with force. 
A strategy betting on the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) while shorting the SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) would have delivered a 24% gain since the start of the year.
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="582" src="https://editorial-assets.benzinga.com/wp-content/uploads/2025/04/22083522/image-126-1024x582.png" alt="" class="wp-image-881800" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2025/04/22083522/image-126-1024x582.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2025/04/22083522/image-126-300x170.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2025/04/22083522/image-126-768x436.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2025/04/22083522/image-126-1536x873.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2025/04/22083522/image-126.png 1901w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
<h2 class="wp-block-heading">Political Uncertainty Fuels The Flight To Yen</h2>
The deepening standoff between President Donald Trump and Federal Reserve Chair Jerome Powell has rattled global confidence in the U.S. financial assets while boosting flows towards traditional safe havens.
What began as Trump's critique of Powell's monetary policy has escalated into a full-blown power struggle, with Trump openly suggesting he may remove Powell before his term ends in 2026.
On Monday, Trump&#8217;s latest Truth Social salvo accused Powell of being "Mr. Too Late" and claimed the Fed Chair had acted politically during the last election cycle.
In this environment, non-dollar safe havens like gold and the yen are soaking up demand. While gold draws headlines with its 30% year-to-date rally, the yen's strength speaks volumes about how global capital is repositioning as U.S. institutions come under pressure.
"The yen is the biggest winner in this latest round of USD selling," said Francesco Pesole, FX strategist at ING. "It responds to both the equity slump and the risks to the Fed's independence."
<h2 class="wp-block-heading">Analysts See More Upside For The Yen</h2>
Pesole doesn't see the yen's rally reversing anytime soon. 
"USD/JPY has dropped below the 140 mark and, given the broad attractiveness of the yen as a safe-haven substitute, we don't see the conditions for an immediate reversal," he said, adding that a move toward 135.0 could materialize if currency discussions surface during U.S.-Japan trade talks this week.
Japanese Finance Minister Katsunobu Kato is set to meet U.S. Treasury Secretary Scott Bessent, with currency issues reportedly high on the agenda. 
If the Trump administration seeks a trade concession in the form of a weaker dollar vs. the yen, markets could quickly price in further gains for Japan's currency.
Alejandro Cuadrado, strategist at BBVA, indicated that "USD/JPY has the 135.58 2024 low in sight," citing the yen's strength from haven flows, solid fundamentals and a Bank of Japan stance that appears steady even amid global volatility.
Indeed, reports on Monday suggested BoJ officials have no plans to abandon their tightening bias, even as inflation forecasts are expected to be trimmed in light of the stronger yen. 
"The yen exuberance remains unchallenged in G10 FX," Cuadrado added. "We believe the pair has room to consolidate at lower levels in the coming months."
<h3 class="wp-block-heading">Yen Outperforms In VIX Spikes, Even When Yields Rise</h3>
Goldman Sachs FX strategist Kamakshya Trivedi highlighted that the yen tends to outperform the dollar during periods of simultaneous bond and equity selloff. That&#8217;s particularly the case when the CBOE Volatility Index is elevated.
"The past few days have been more unique—with growing odds of a U.S. downturn coinciding with higher yields and lower equities," Trivedi said. 
"When we calculate average USD/JPY returns since 2000 on days when both bonds and equities sell off, the yen tends to outperform—especially when the VIX spikes."
Goldman maintains a 12-month target of 135 for USD/JPY, yet Trivedi noted that deterioration in the U.S. labor market or further market stress could significantly accelerate that timeline.
Now Read: 
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<li><a href="http://benzinga.com/economics/macro-economic-events/25/04/44910907/top-fed-voices-defend-powell-slam-trumps-attack-on-central-bank-independence">Top Fed Voices Defend Powell, Slam Trump&#8217;s Attack On Central Bank Independence</a></li>
</ul>
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Japanese Yen Surges To 7-Month Highs, Expects Best Year Since 2010 As Safe-Haven Stampede Intensifies

JPMorgan's Meera Chandan is doubling down on the dollar's downfall and placing a bullish bet on the Japanese yen.
What Happened: <a href="https://www.benzinga.com/topic/donald-trump">President Donald Trump'</a>s reciprocal tariffs plunge stocks into the red, there are growing concerns that a recession is possible. 
&#8220;The breadth and size of tariffs have increased recession risks,&#8221; Chandan said. &#8220;Growth is at risk everywhere, including the US.&#8221;
According to Chandan, the currency market is waking up to a stagflationary cocktail: weakening U.S. growth paired with persistent inflation. That combo is taking a bite out of real yields and the greenback&#8217;s allure. As equity allocations fall and capital rethinks its destination, the U.S. dollar is losing its shine.
Chandan sees this as a moment to stay firmly bearish on the dollar, particularly against defensive currencies like the Japanese yen and the euro. But while both offer refuge, she prefers the yen for its relative value. Chandan favors the Japanese yen among traditional reserve currencies, calling it a cheaper defensive option than the Swiss franc.
Read Also: <a href="https://www.benzinga.com//node/44315966">The Rise Of ETFs In Japan: How Investors Can Gain From Bond Yield Surge</a>
The technical picture backs her up. With U.S. real yields sliding and equity investors heading for the exit, the yen&#8217;s low yield becomes a feature, not a bug. Chandan isn't just skeptical of the dollar — she's positioning to profit from its pain.
Her strategy includes staying short USD/JPY and loading up on cross-yen shorts like EUR/JPY, NZD/JPY, and CHF/JPY.
<h2 class="wp-block-heading">How To Play It</h2>
Retail investors looking to follow Chandan's lead might explore the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) for direct exposure to yen strength, or ProShares Short U.S. Dollar ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/DOG#NYSE">DOG</a>) for a broader USD bearish bet.
Meanwhile, those hoping to catch the potential euro tailwind might consider Invesco CurrencyShares Euro Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXE#NYSE">FXE</a>).
With U.S. yields buckling under stagflation pressure, Chandan says it's time to cozy up to the yen. The dollar's safe-haven status? Not so safe anymore.
Read Next: 
<ul>
<li><a href="https://www.benzinga.com//node/44665493">US Recession &#8216;Countdown&#8217; Has Begun As Trump Tariffs Push Odds To 45%, Goldman Sachs Warns</a></li>
</ul>
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Short The Dollar, Back The Yen: Analyst Offers Strategy As 'Breadth Of Tariffs Increase Recession Risks'

Goldman Sachs economists have sounded the alarm on the U.S. economy, launching what they termed a &#8220;countdown to recession&#8221; as Donald Trump's aggressive tariff policy derails economic forecasts.
In a note shared Monday, the Goldman Sachs economic team led by Jan Hatzius downgraded its U.S. gross domestic product forecast for year-end 2025 to just 0.5% year-over-year, down from 1.7% previously. 
The downgrade follows a combination of shocks, including higher tariffs announced by the Trump administration, tightening financial conditions and rising geopolitical friction, that the bank says are disproportionately affecting lower-income Americans and threatening to derail the U.S. economy.
Traders on CFTC-regulated betting platform Kalshi currently price in a 66% chance of a U.S. recession this year, up from 40% last week.
<iframe loading="lazy" src="https://kalshi.com/external-widgets/events/RECSSNBER-25/markets/RECSSNBER-25?color_scheme=light&#038;widget_size=large&#038;utm_campaign=benzinga_widget" width="552px" height="400px" style="border:0"></iframe>
<h3 class="wp-block-heading">Trade War Reloaded? What's Behind The Rising Recession Call</h3>
Goldman Sachs said its baseline scenario still assumes some moderation in tariff implementation. Still, if most of the April 9 tariffs are enacted as planned, the effective U.S. tariff rate could surge by 20 percentage points.
"Our forecast had already assumed forceful retaliation by foreign governments, but we had not accounted for the effects of a consumer-led response," the team said, pointing to anticipated foreign consumer boycotts and reduced tourism flows to the United States, which alone could shave 0.1 to 0.2 percentage points off 2025 GDP.
Additionally, uncertainty around trade policy is compounding the issue. "Much of the very recent rise in uncertainty was related to President Trump's ‘reciprocal' tariff plan," Goldman said, adding that despite having more details, ambiguity around international responses and the scope of future tariff increases remains high.
<h3 class="wp-block-heading">Investment And Hiring Set To Stall</h3>
Business investment, a key driver of economic growth, is now expected to flatline over the next 12 months. According to Goldman Sachs' models, there is now a 45% probability that capital expenditures will decline during that period.
The economic team also sees looming pressure on federal, state and local government spending, especially in sectors like healthcare, education and infrastructure, which is amplifying the drag on the economy.
"We now expect roughly flat business investment over the next year," Goldman said, noting that tightening financial conditions and tariff-driven uncertainty discourage companies from expanding or hiring.
Consumer spending, which makes up about 70% of the U.S. economy, is also under threat. As labor supply growth slows and job creation weakens, Goldman expects a meaningful deceleration in household consumption.
"Tariffs reduce real disposable income," the bank said, implying that higher prices for imported goods will weigh on consumer purchasing power, especially among lower-income households.
The combination of weaker hiring, stagnant investment and declining consumer confidence creates a toxic mix for growth, one that might push the economy into contraction territory if shocks continue to build.
<h3 class="wp-block-heading">Recession Risk Spurs Hedging Shift</h3>
The rise in recession probability is not just a warning signal — it&#8217;s a tactical call for investors to rethink their hedging strategies. 
Goldman Sachs analyst Karen Reichgott Fishman said the combination of diminishing U.S. economic exceptionalism and increased risk of recession supports a strategic move into safe-haven currencies.
"The loss of U.S. exceptionalism and higher recession risk argue for a shift in hedging strategy," Fishman said. "We think U.S. investors should be better off adding JPY, CHF, and even EUR exposure as protection."
Since last week&#8217;s tariff announcement, the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) has risen by 3%, while the SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) fell 13%.
Read now: 
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<li><a href="https://www.benzinga.com/general/market-summary/25/04/44662164/us-stock-futures-slump-following-massive-tariff-induced-selloff-experts-warn-of-a-brewing-great-depression-like-pattern">US Stock Futures Drop Following Massive Tariff-Induced Selloff: Experts Warn Of A Brewing &#8216;Great Depression-Like&#8217; Pattern</a></li>
</ul>
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News

US Recession 'Countdown' Has Begun As Trump Tariffs Push Odds To 45%, Goldman Sachs Warns

Japan's financial markets are witnessing a shift as the country's benchmark 10-year government bond yield climbed to 1.575% on Monday, the highest level since 2008. This sharp rise follows data showing the fastest wage growth in more than three decades, strengthening expectations of further interest rate hikes by the Bank of Japan (BOJ).
With higher interest rates on the horizon, investors are evaluating <a href="https://www.benzinga.com/etfs">Japan-focused ETFs</a> to capitalize on these market shifts. Here are some key ETFs to watch:
iShares MSCI Japan Value ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/EWJV#NASDAQ">EWJV</a>)
Generally, value stocks thrive better in a rising interest rates environment than growth stocks. In this scenario, investing in iShares MSCI Japan Value ETF could bode well. The ETF has gained 7.08% this year thus far. Value stocks tend to perform well in a high-rate environment as they are less reliant on borrowing and hence have stronger balance sheets.
Also Read: <a href="https://www.benzinga.com/etfs/specialty-etfs/25/02/43893016/rising-inflation-in-japan-3-etfs-to-watch-as-boj-navigates-rate-hike-expectations">Rising Inflation In Japan: 3 ETFs To Watch As BOJ Navigates Rate Hike Expectations</a>
iShares MSCI Japan Small Cap ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SCJ#NYSE">SCJ</a>)
A likely moderately stronger yen could be favorable for small-cap Japanese stocks, which are less reliant on exports compared to large-cap firms. An ETF to watch in this space is iShares MSCI Japan Small Cap ETF, which is up 5.77% year-to-date.
However, before choosing small-cap investments, investors should closely follow Japan's real wage hike momentum. While regular pay has seen its biggest <a href="https://www.bloomberg.com/news/articles/2025-03-09/japan-sees-fastest-base-pay-gains-in-32-years-in-boost-for-boj?sref=TBDibEcD">increase </a>in more than 30 years, Reuters reported that real wages fell in January due to inflation reaching a two-year high. If nominal wage growth beats inflation in the coming months, small-cap stocks could gain from stronger domestic purchasing power.
Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>)
Any monetary policy tightening by the BOJ, which is a high probability now, is likely to strengthen the Japanese yen. This is where the Invesco CurrencyShares Japanese Yen Trust could prove to be a wise investment, benefiting from a stronger yen as the central bank adjusts its policy stance. Incidentally, BOJ Governor Kazuo Ueda commented on the recent rises in bond yields, saying the market is factoring in expectations of future interest rate hikes, Reuters reported.
BOJ's Policy Path And Market Predictions
The BOJ put an end to its decade-long monetary stimulus in 2024 and <a href="https://www.benzinga.com/news/econ-s/25/01/43183053/bank-of-japan-raises-interest-rates-to-pre-2008-levels-amid-trumps-tariff-uncertainties">raised short-term interest rates</a> to 0.5% from 0.25% in January 2025. This decision stemmed from Japan's progress toward achieving a sustainable 2% inflation target.
According to Bloomberg, JPMorgan Chase &amp; Co. has raised its year-end forecast for the 10-year Japanese government bond yield from 1.55% to 1.7%, with some investors predicting the yield could climb as high as 2%, <a href="https://finance.yahoo.com/news/japan-10-yield-highest-since-071046785.html">quoted </a>Yahoo Finance.
Read Next: 
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<li><a href="https://www.benzinga.com/etfs/specialty-etfs/25/03/44310370/3-etfs-with-super-micro-computers-exposure-enjoy-ai-surge">3 ETFs With Super Micro Computers Exposure, Enjoy AI Surge</a></li>
</ul>
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Emerging Markets

Specialty ETFs

EWJV

The Rise Of ETFs In Japan: How Investors Can Gain From Bond Yield Surge

U.S. stocks are wavering as investors have braced themselves for potential shifts in tariff policies from President Donald Trump. Markets remain cautious as Trump prepares to unveil his universal like-for-like tariff plan, set for midweek. On Feb. 10, the President imposed 25% tariffs on all steel and aluminum imports starting March 4, intensifying pressure on top trading partners Canada and Mexico. Investors are weighing the potential impact of a trade war on corporate earnings, global growth and inflation.
Trump&#39;s steel tariffs could trigger a broader trade war as the EU threatens &lsquo;proportionate countermeasures. Tensions between the United States and China had already escalated after the United States implemented a 10% tariff on Chinese imports on Feb. 4. In response, China retaliated with tariffs on U.S. products, including a 15% levy on coal and liquefied natural gas (AMEX:LNG) and a 10% tariff on crude oil, agricultural machinery and automobiles from Feb. 10.
Meanwhile, UBS believes that the U.S. effective tariff rate on China will&nbsp;<a href="http://www.aastocks.com/en/stocks/news/aafn-news/NOW.1414645/1" target="_blank">eventually rise to 30%</a>&nbsp;from the current 11%. Investors are also worried about the Fed&#39;s policy momentum. Markets are eager for insights on how tariffs could influence inflation (read: <a href="https://www.zacks.com/stock/news/2411504/5-sector-etfs-walk-a-tightrope-amid-trade-tensions" target="_blank">5 Sector ETFs Walk a Tightrope Amid Trade Tensions</a>).
<h2>ETFs to Play</h2>
Against this backdrop, below we highlight a few safe exchange-traded funds (ETFs) that could be gainful in the near term.
SPDR Gold Trust GLD
Gold is often viewed as a safe-haven asset. Gold prices jump at the time of economic uncertainties. No wonder, gold prices surged to a fresh record as investors sought safety amid economic uncertainty. Note that unlike fiat currencies, which can be printed in unlimited quantities, gold has a finite supply. This scarcity helps maintain its value. Lately, demand for gold from central banks has been pretty high (read: <a href="https://www.zacks.com/stock/news/2408987/5-reasons-why-gold-etfs-are-smart-bets-now?art_rec=etfs-overview-zacks_news-ID04-txt-2408987" target="_blank">5 Reasons Why Gold ETFs Are Smart Bets Now</a>).
Consumer Staples Select Sector SPDR ETF XLP
In periods of economic uncertainty, market volatility, or inflationary pressures, the consumer staples sector is often considered a safe investment. The sector sells essential goods with steady demand. Unlike discretionary sectors, where spending fluctuates with economic cycles, consumer staples tend to have predictable revenues and earnings. Many consumer staples companies have a long history of paying consistent and growing dividends.
Utilities Select Sector SPDR ETF XLU
The utility stocks also get a safe-haven tag. Utilities provide essential services such as electricity, water, and natural gas, which people and businesses rely on regardless of economic conditions. This makes the sector non-cyclical, meaning demand remains stable even during recessions. Utilities can often pass increased costs to consumers through regulated rate adjustments. Moreover, the latest AI boom has brightened the demand for utilities even more as this sector satisfies the AI industry&#39;s energy needs.
Invesco CurrencyShares Japanese Yen Trust FXY
The Japanese yen is widely recognized as a safe-haven currency, often appreciating during economic uncertainty, market volatility and geopolitical instability.Japan&#39;s consistent current account surplus indicates that the country is a net creditor to the world, bolstering confidence in the yen during turbulent times. The Japanese yen has been in great shape lately due to Bank of Japan&#39;s hawkish monetary policy (read: <a href="https://www.zacks.com/stock/news/2410818/time-for-yen-etf?art_rec=etfs-overview-zacks_news-ID01-txt-2410818" target="_blank">Time for Yen ETF?</a>).
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<a href="https://www.zacks.com/registration/pfp/?ALERT=ETF225&amp;adid=SYND_BENZ_TCK_ETFNEWSANDCOMMENTARY_2414298_XLP&amp;d_alert=rd_final_rank&amp;t=XLP&amp;split=1&amp;cid=CS-BENZ-FT-etf_news_and_commentary-2414298">Consumer Staples Select Sector SPDR ETF (ETF:XLP): ETF Research Reports</a> 
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4 Safe ETFs to Play as Tariff Tensions Heat Up

Ahead of next week's <a href="https://www.benzinga.com/topic/bank-of-japan">Bank of Japan</a> (BoJ) meeting, investor sentiment is shifting back toward the &#8216;BoJ trade&#8217; — a strategy that plays on long Japanese equities and banks, while shorting the yen and Japanese government bonds (JGBs).
Despite recent reports suggesting the BoJ is unlikely to hike rates before 2024, this revived trade has gained momentum, particularly after Donald Trump's election win, according to JPMorgan analyst Nikolaos Panigirtzoglou.
The yen has weakened, moving from 150 to 153 against the dollar, and the probability of a December rate hike has dropped sharply from 50% to just over 10%.
Read Also: <a href="https://www.benzinga.com/news/econ-s/24/11/42221646/stocks-fall-yen-eyes-best-day-in-2-months-bitcoin-rebounds-above-96000-whats-driving-markets-wednesday">Stocks Fall, Yen Eyes Best Day In 2 Months, Bitcoin Rebounds Above $96,000: What&#8217;s Driving Markets Wednesday?</a>
<h2 class="wp-block-heading">Trump's Influence</h2>
Panigirtzoglou highlights that investors have been increasing their long positions in Japanese equities, shorting the yen, and shorting JGB futures, expecting that Japan's inflationary pressure from a weaker yen will lead to a boost in economic activity. 
The "BoJ trade" emerged at the end of 2022, with the expectation that Japan's persistent negative real rates and a weaker yen would spark inflation and allow the BoJ to lift nominal policy rates.
The inflationary aspect of Trump's policies, which reduce the chance of aggressive Fed rate cuts, has reignited investor interest in the trade.
<h2 class="wp-block-heading">The BoJ's Indecision: A Mixed Market Reaction</h2>
Since September, Japanese equities have traded in a range, although Japanese banks have outperformed, benefiting from the weaker yen. 
Positioning in the futures space, particularly for Nikkei and JGBs, has been volatile. While the unwinding of the "BoJ trade" had been significant earlier this year, post-election positioning has surged. However, this build-up in JGB futures didn't last long, as investor sentiment quickly adjusted, reflecting uncertainty over the BoJ's next move.
As Panigirtzoglou notes, the positioning shift was particularly notable, with one-third of the short positions in yen futures and significant unwinding of short positions in JGB futures by the end of September.
<h2 class="wp-block-heading">Is Japan Still The Inflation Play?</h2>
With Japan&#8217;s inflationary prospects, driven by negative real rates and a weaker yen, the "BoJ trade" remains a potential winner for investors willing to bet on Japan's evolving economic landscape. 
But with market fluctuations and global risks, the outlook remains mixed. As Panigirtzoglou states, the trajectory of the trade hinges largely on the BoJ's decisions in the coming months—investors are closely watching to see if the central bank will wait or take action.
The iShares MSCI Japan ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/EWJ#NYSE">EWJ</a>), the JPMorgan BetaBuilders Japan ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BBJP#NYSE">BBJP</a>) and the WisdomTree Japan Hedged Equity Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/DXJ#NYSE">DXJ</a>) are popular ways to get exposure to Japanese equity.
The Invesco Currencyshares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) provides exposure to the Japanese yen.
Read Next: 
<ul>
<li><a href="https://www.benzinga.com/24/11/42244807/dollar-snaps-8-week-winning-streak-falls-to-1-month-low-versus-yen-as-traders-brace-for-bojs-interest-rate-hike">Dollar Snaps 8-Week Winning Streak, Falls To 1-Month Low Versus Yen As Traders Brace For Bank Of Japan Interest Rate Hike</a></li>
</ul>
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Asia

BBJP

WisdomTree Trust Japan Total Dividend Fund

Trump Policies To Kick BoJ Trade Back Into Gear: Is Japan The New Inflation Play?

The U.S. dollar is poised to end an eight-week winning streak with its worst weekly drop since mid-August, as resilient European currencies and a surging Japanese yen <a href="https://www.benzinga.com/topic/forex">pull the greenback lower. </a>
A currency-weighted gauge of the dollar, tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/UUP#NYSE">UUP</a>), has declined more than 1.4% this week, signaling a shift in market sentiment against the greenback.
<h3 class="wp-block-heading">A Softening Dollar Amid Tariff Threats</h3>
Despite looming trade tariff threats from President-elect Donald Trump, the dollar has struggled to maintain its upward momentum. Trump recently reiterated his commitment to imposing <a href="https://www.benzinga.com/24/11/42178994/trump-says-he-will-impose-25-tariffs-on-canada-mexico-on-first-day-of-office-and-extra-tariffs-on-china-until-they-pay-attention">a 25% tariff on goods</a> from Mexico and Canada and an additional 10% on imports from China. Yet these aggressive trade policies failed to buoy the U.S. currency.
This week, the dollar fell 1.3% against both the euro and the British pound, but its steepest declines were against the Japanese yen. 
The yen, tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>), gained significant ground amid speculation that the Bank of Japan (BoJ) could announce an interest rate hike in December.
<h3 class="wp-block-heading">Dollar-Yen Pair Slumps As BoJ Rate Hike Looms</h3>
The dollar-yen pair dropped to the 150 level on Friday morning, marking a 1% decline during the session and extending its weekly loss to 3%. This marks the pair's lowest levels since October 21.
The catalyst for the yen&#8217;s rally came from Thursday&#8217;s release of Tokyo's November Consumer Price Index (CPI), which surpassed expectations. 
The headline inflation rate rose 2.6% year-over-year (YoY), beating forecasts of 2.2% and up sharply from October's 1.8%. Core inflation also climbed to 1.9% YoY, in line with projections but higher than the prior month's 1.8%.
Japan's October retail sales and industrial production data also indicated steady economic growth, reinforcing the narrative of an improving economy.
Masato Koike, senior economist at Sompo Institute Plus, told Reuters that increases in consumer prices have also spilled over to services-related items, which is &#8220;positive news for the BoJ in normalizing policy."
<h3 class="wp-block-heading">Analysts See BoJ Tightening Path</h3>
The stronger-than-expected inflation data has fueled expectations of a December rate hike by the BoJ. 
According to BBVA forex analyst Alejandro Cuadrado, the Tokyo inflation numbers have significantly increased the likelihood of policy action by the BoJ on Dec. 19.
"The market is currently pricing in a 60% probability of a 15-basis-point hike to bring the reference policy rate to 0.4%," Cuadrado said.
Cuadrado also emphasized the importance of the U.S.-Japan yield differential, which could drive further yen gains in the medium term. 
He added, "The BoJ will continue to raise rates, while we also think that the market could now be slightly more hawkish about what the Fed may ultimately do."
<h3 class="wp-block-heading">Why the Dollar-Yen Exchange Rate Matters for Stocks</h3>
The dollar-yen exchange rate has proven to be a critical barometer of global risk sentiment, particularly during periods of heightened market volatility. This dynamic was on full display over the summer, when abrupt yen appreciations in early August triggered sharp sell-offs across global equity markets.
Traders were unnerved by the prospect of an unexpected monetary tightening by the BoJ, fearing it could unravel large speculative positions — the so-called &#8216;carry trade&#8217; — that had bet on a widening interest rate differential between the Fed and the BoJ.
Such a scenario would have seen significant liquidity flow back into the yen, reducing capital availability for riskier assets like stocks.
Between Aug. 2 and Aug. 5, the Nasdaq 100 — tracked by the Invesco QQQ Trust, Series 1 (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>) — had tumbled by a cumulative 8% in three sessions, registering its worst 3-day performance in over two years.
Check Out:
<ul>
<li><a href="https://www.benzinga.com/24/11/42225506/canada-prepares-retaliatory-tariffs-as-trumps-threat-looms-analysts-warn-of-further-loonie-weakness">Canada Prepares Retaliatory Tariffs After Trump Threats: Analysts Warn Of Further Loonie Weakness</a></li>
</ul>
Image: Shutterstock

Tech

PowerShares DB US Dollar Index Bullish Fund

Dollar Snaps 8-Week Winning Streak, Falls To 1-Month Low Versus Yen As Traders Brace For Bank Of Japan Interest Rate Hike

The Japanese Yen, as tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>), weakened past 153.20 per U.S. dollar on Monday, marking its lowest <a href="https://www.benzinga.com/topic/japan">level since late July 2024. </a>
The decline follows a significant political shakeup over the weekend, as Japan&#8217;s ruling coalition – the Liberal Democratic Party (LDP) and its partner Komeito – lost its majority in the Lower House General Election. 
This unexpected result has fueled investor concerns about Japan&#8217;s future fiscal and monetary policy direction, contributing to the yen's slide, which is already weakening 6.2% in October. 
This negative performance is on par with April 2022, and with three days remaining, any further decline would mark the yen's worst monthly drop since November 2016.
<h3 class="wp-block-heading">Chart: Japanese Yen Eyes For Worst Monthly Drop Since November 2016</h3>
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="418" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/10/28155136/image-285-1024x418.png" alt="" class="wp-image-618018" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/10/28155136/image-285-1024x418.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/10/28155136/image-285-300x123.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/10/28155136/image-285-768x314.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/10/28155136/image-285-1536x627.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/10/28155136/image-285.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption"><a href="https://bzresearch.myclickfunnels.com/benzinga-pro-content-webinar-registration/?utm_source=BZprocontent102824&amp;t=be2bearmibe3na1">Benzinga Pro</a></figcaption></figure>
<h2 class="wp-block-heading">Political Uncertainty Adds Pressure On Yen</h2>
&#8220;The ruling LDP and its coalition partner lost their majority in the lower house, raising concerns about the shape and policy direction of the next government,&#8221; wrote Scotiabank in a research note on Monday.
Goldman Sachs analyst Tomohiro Ota highlighted that the weakened political position of the ruling coalition could lead to calls for more fiscal expansion, as some opposition parties advocate increased government spending. 
However, he cautioned, &#8220;we do not think the election result would bring major fiscal and monetary policy change.&#8221; Instead, Ota suggests that the ruling coalition's "administrative power has inevitably become more fragile."
&#8220;We see likelihood of pressure building towards more fiscal expansion, given that some opposition parties advocate this,&#8221; Ota added.
BBVA's chief strategist Alejandro Cuadrado indicated that the political shifts could also delay any monetary tightening by the Bank of Japan (BoJ). 
"Investors felt that the LDP's ruling coalition losing its parliamentary majority could delay the BoJ&#8217;s next rate hike," Cuadrado wrote in a report.
<h3 class="wp-block-heading">US-Japan Yield Gap Widens Ahead Of BoJ Meeting</h3>
The widening interest rate differential between U.S. and Japanese bonds has also been a key driver of yen&#8217;s recent weakness. 
The yield gap between 10-year U.S. Treasuries and Japanese government bonds expanded from 2.75% in early Sept. to 3.30% as of Oct. 28. Short-term differentials have also risen, with the 2-year U.S. Treasury yield gap over its Japanese counterpart increasing from 3.15% to 3.68% over the past six weeks. 
The widening yield advantage is making the U.S. dollar increasingly attractive to investors, adding downward pressure on the yen and bolstering yen-dollar carry trade strategies.
The Bank of Japan (BoJ) is set to meet on Thursday, but analysts are not expecting any immediate policy changes. 
Luca Cigognini, a market strategist at Intesa Sanpaolo, highlighted that the political situation could impact the BoJ&#8217;s policy decisions. 
"Forming a new government becomes more complicated, and the effects could also be seen on the BoJ, which may avoid tightening monetary policy in the future," Cigognini wrote.
ING analyst Chris Turner, however, expects that a December rate hike could still be on the table and suggested investors not to chase yen-dollar carry trade opportunities ahead of volatile weeks due to U.S. elections. 
&#8220;The market sees very little chance of a rate hike this week from the Bank of Japan,&#8221; he said, adding that the political turbulence may add a layer of caution to the BoJ's approach.
&#8220;With volatility likely to rise further into next week (exactly the wrong conditions for the carry trade), we do not favour chasing USD/JPY higher from these levels,&#8221; he added. 
Read now: 
<ul>
<li><a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/10/41581488/is-s-p-500-headed-for-a-lost-decade-analysts-say-we-may-have-forgotten-about-divide">Is S&amp;P 500 Headed For A Lost Decade? Analysts Say &#8216;We May Have Forgotten About Dividends&#8217;</a></li>
</ul>
Image: Unsplash

Econ #s

Japanese Yen Hits 3-Month Low Against Dollar, Eyes Worst Month In 8 Years As Political Uncertainty Rises In Japan

Economic activity in the U.S. services sector continued to expand in September, as the Services PMI reached 54.9%, its highest level since February 2023, <a href="https://www.benzinga.com/topic/pmi">marking a robust recovery</a>.
According to the Services ISM Report On Business released on Thursday, this increase of 3.4 percentage points from August's 51.5% reflects strong growth in business activity and new orders. 
The report raises concerns about how it may influence upcoming Federal Reserve rate cuts. With the services sector expanding for 49 of the last 52 months, the data suggests resilient demand, which could influence the Fed's decision on the size of the anticipated November cut.
According to the CME FedWatch tool, traders now see a 65.6% probability of a 25-basis point rate cut in November, with a 34.4% chance of a 50-basis point cut.
Also on Thursday, the S&amp;P Global US Services PMI Business Activity Index posted 55.2 in September. That&#8217;s slightly down from 55.7 in August. This marked the 20th consecutive month of expansion in services activity. New orders continued to rise solidly, although input prices increased at the joint-fastest pace in a year, driven by salary pressures and higher costs for manufactured goods.
Employment dropped for the second month, but companies remained cautious about hiring due to strong cost pressures. Business confidence declined sharply to its lowest level since October 2022 as concerns about an economic slowdown grew.
<h3 class="wp-block-heading">September ISM Services PMI Report: Key Highlights</h3>
<ul>
<li>The Services PMI rose to 54.9% in September, the highest reading since February 2023.</li>
<li>Business activity expanded significantly, with the Business Activity Index climbing to 59.9%.</li>
<li>The New Orders Index increased to 59.4%, up from 53% in August.</li>
<li>The Employment Index contracted to 48.1%, down from 50.2% in August.</li>
<li>The Supplier Deliveries Index returned to expansion, hitting 52.1%.</li>
<li>Panelists expressed concerns over political uncertainty and labor costs, despite positive supply chain improvements.</li>
</ul>
<h3 class="wp-block-heading">Experts React To September Data</h3>
Steve Miller, chair of the ISM Services Business Survey Committee, highlighted the continued expansion in services. "Twelve industries reported growth in September, up two from the 10 industries reporting growth in August,&#8221; he said.
&#8220;The Supplier Deliveries Index returned to expansion in September, indicating slower delivery performance,&#8221; Miller added. &#8220;The stronger growth indicated by the index data was generally supported by panelists' comments; however, concerns over political uncertainty are more prevalent than last month&#8221;
Chris Williamson, chief business economist at S&amp;P Global Market Intelligence, said, &#8220;U.S. service sector businesses reported a strong end to the third quarter, with output continuing to grow at one of the fastest rates seen over the past two-and-a-half years.&#8221; 
Still, he also noted that &#8220;companies have become increasingly concerned about the outlook… with business confidence slumping in September amid uncertainty caused by the upcoming election as well as perceptions of rising recession risks.&#8221;
<h3 class="wp-block-heading">Market Reactions</h3>
Markets were trading lower on Thursday following the data release.
The S&amp;P 500, tracked by the SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>), was trading 0.5% lower.
The U.S. dollar index (DXY), tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/UUP#NYSE">UUP</a>), was up 0.31%
Other major asset movements following the ISM Services PMI print included: 
<ul>
<li>The Nasdaq 100, as monitored through the Invesco QQQ Trust (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>), was down 0.3%.</li>
<li>The iShares 20+ Year Treasury Bond ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TLT#NASDAQ">TLT</a>), tracking long-dated Treasuries, was down 0.63%.</li>
<li>Gold, as tracked by the SPDR Gold Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GLD#NYSE">GLD</a>), was down 0.3%.</li>
</ul>
Image created using artificial intelligence via Midjourney.

iShares Trust Barclays 20+ Year Treasury Bond Fund

Services Sector Surges In September, Raising Questions For Fed's November Rate Cut

To gain an edge, this is what you need to know today.
<figure class="wp-block-image size-large is-resized"><img decoding="async" src="https://thearorareport.com/wp-content/uploads/2024/10/2024-10-01_08h10_05.png" alt="" style="width:624px" /></figure>
<h3 class="wp-block-heading">Important Data Ahead</h3>
Please <a href="https://thearorareport.com/chart-analysis-stock-market-dip-powell-blind-money-spy-mc-10012024">click here</a> for an enalrged chart of SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) which represents the benchmark stock market index S&amp;P 500 (SPX).
Note the following:
<ul>
<li>The chart shows the dip in the market caused by Powell's remarks. Powell pushed back against aggressive rate cut bets that the momo crowd has placed. Powell clearly said that the Fed plans on two 25 bps cuts this year assuming the economy stays on the expected trajectory. The momo crowd is counting on 100 bps cut. Even non-momo investors are betting on 75 bps cuts.</li>
<li>The chart shows the dip on Powell's remarks was aggressively bought, running the stock market higher than where it was before Powell's remarks. The buying appears to be related to quarter end window dressing.</li>
<li>Momo gurus' new narrative to persuade their followers to buy stocks is to not trust the Fed.&nbsp; Prudent investors always need to be mindful that momo gurus' interest is not the same as prudent investors' best interest.</li>
<li>There are two important pieces of data ahead.
<ul>
<li>JOLTS job openings data will be released at 10am ET.</li>
<li>ISM Manufacturing index will also be released at 10am ET.</li>
<li>Both of these pieces of data may be market moving.</li>
</ul>
</li>
<li>The most important economic data this week is the jobs report, also known as the mother of all reports, that will be released at 8:30am ET on Friday.</li>
<li>Expect blind money to flow into the stock market today and tomorrow.&nbsp; Blind money is the money that flows into the stock market on the first two days of the month without any analysis irrespective of market conditions.</li>
<li>East coast port workers have gone on strike. FedEx Corp (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FDX#NYSE">FDX</a>) is a beneficiary.  As full disclosure, FDX was recently added to the portfolio that surrounds the Core Model Portfolio in The Arora Report&#8217;s ZYX Buy, taking advantage of the dip on earnings.  The Arora Report utilizes over 50 different strategies. FDX belongs to the strategy of earnings patterns that historically work. </li>
<li>In important news for prudent investors, Michael Dell has sold $1.22B in Dell Technologies Inc (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/DELL#NYSE">DELL</a>) shares.&nbsp; Michael Dell is taking advantage of the run up in Dell shares on the AI frenzy.&nbsp; The momo crowd is oblivious and has been an aggressive buyer of DELL stock.</li>
<li>Prudent investors should also note that there is a consistent pattern of insiders selling AI stocks that have run up.&nbsp; It is important to pay attention to the protection band as well as to separate articles indicating putting on hedges or taking partial profits.</li>
</ul>
<h3 class="wp-block-heading">Japan</h3>
Japan's new prime minister is likely to favor tighter fiscal policy and tighter monetary policy.  Such tighter policies will be good for the Japanese yen.  As full disclosure, there is a position in yen using Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) in The Arora Report&#8217;s ZYX Allocation.  On the negative side, tighter fiscal and monetary policies in Japan increase the risk to the carry trade.  Lately, in the carry trade, funds have been borrowing in yen and investing in U.S. stocks, especially AI stocks.
<h3 class="wp-block-heading">Magnificent Seven Money Flows</h3>
In the early trade, money flows are positive in Alphabet Inc Class C (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/GOOG#NASDAQ">GOOG</a>), Meta Platforms Inc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/META#NASDAQ">META</a>), NVIDIA Corp (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/NVDA#NASDAQ">NVDA</a>), and Tesla Inc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TSLA#NASDAQ">TSLA</a>).
In the early trade, money flows are negative in Apple Inc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/AAPL#NASDAQ">AAPL</a>), Amazon.com, Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/AMZN#NASDAQ">AMZN</a>), and Microsoft Corp (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/MSFT#NASDAQ">MSFT</a>).
In the early trade, money flows are mixed in (SPY) and Invesco QQQ Trust Series 1 (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>).
<h3 class="wp-block-heading">Momo Crowd And Smart Money In Stocks</h3>
Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GLD#NYSE">GLD</a>).  The most popular ETF for silver is iShares Silver Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SLV#NYSE">SLV</a>).  The most popular ETF for oil is United States Oil ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/USO#NYSE">USO</a>).
<h3 class="wp-block-heading">Bitcoin</h3>
Bitcoin (CRYPTO: <a class="ticker" href="https://www.benzinga.com/quote/btc/usd">BTC</a>) is range bound.
<h3 class="wp-block-heading">Protection Band And What To Do Now</h3>
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges.&nbsp; The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.&nbsp; If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.&nbsp; A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.&nbsp; When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.&nbsp; High beta stocks are the ones that move more than the market.
<h3 class="wp-block-heading">Traditional 60/40 Portfolio</h3>
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.&nbsp; Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever <a href="https://thearorareport.com/generate-wealth-newsletter-benzinga">Generate Wealth Newsletter</a>.

General

$BTC

AAPL

AMZN

DELL

GOOG

MSFT

NVDA

TSLA

Powell Stock Market Drip Aggressively Bought, Important Data And Blind Money Ahead

To gain an edge, this is what you need to know today.
<figure class="wp-block-image size-large is-resized"><img decoding="async" src="https://thearorareport.com/wp-content/uploads/2024/09/2024-09-27_08h59_50.png" alt="" style="width:624px" /></figure>
<h3 class="wp-block-heading">Spending Disappointment</h3>
Please <a href="https://thearorareport.com/chart-analysis-stock-market-spending-disappointment-boj-carry-trade-smci-mc-09272024">click here</a> for an enlarged chart of Super Micro Computer Inc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/SMCI#NASDAQ">SMCI</a>).
Note the following:
<ul>
<li>This article is about the big picture, not an individual stock. The chart of SMCI stock is being used to illustrate the point.</li>
<li>A fortune is to be made in artificial intelligence, but it is not going to be in a straight line. At times, it is going to be treacherous.  It is important to not make mistakes by getting carried away with the momo crowd and listening to momo gurus who have a vested interest that is not your best interest.</li>
<li>The chart shows that momo crowd favorite SMCI fell yesterday on the news of a Department of Justice (DOJ) probe due to allegations of accounting irregularities. A DOJ probe is a serious matter as it is often a criminal probe.</li>
<li>The chart shows that the enthusiasm was at its peak right after SMCI stock was added to S&amp;P 500.</li>
<li>The chart shows from the peak to the low, the stock lost 69% of its value.</li>
<li>The chart shows that the day S&amp;P 500 added SMCI stock, The Arora Report made a bold call. The Arora Report call was that SMCI was worth only $442 &#8211; $486 in the best case. The stock peaked at $1229.  As of this writing in the premarket, SMCI stock is trading at $400.95.  All Arora Report calls are 100% transparent, traceable, and auditable. Members have access to over ten years of archives, including the winners and losers – no cherry picking.</li>
<li>Right now, the momo crowd is sitting on massive losses in SMCI stock. The momo crowd was not able to distinguish between NVIDIA Corp (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/NVDA#NASDAQ">NVDA</a>) and Super Micro Computer – the prevailing belief among the momo crowd was that NVDA and SMCI were the same.</li>
<li>The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to personal income and personal spending.  Just released personal income and spending data is disappointing.  Here are the details of the new personal income and spending data:
<ul>
<li>Personal income came at 0.2% vs. 0.4% consensus.</li>
<li>Personal spending came at 0.2% vs. 0.3% consensus.</li>
</ul>
</li>
<li>PCE is the Fed&#8217;s favorite inflation gauge.&nbsp; Here are the details:
<ul>
<li>PCE came at 0.1% vs. 0.1% consensus.</li>
<li>Core PCE came at 0.1% vs. 0.2% consensus.</li>
<li>In The Arora Report analysis, the data is in line with expectations. As such, this data should have no impact on the stock market.</li>
<li>Even though the stock market pays a lot of attention to PCE, in The Arora Report analysis, economists have become really good at projecting PCE.&nbsp; As such, investors&#8217; expectations, in general, should be that PCE will come in line with consensus.</li>
</ul>
</li>
</ul>
<h3 class="wp-block-heading">Japan</h3>
Bank of Japan (BOJ) actions are very important for U.S. investors. The reason is the carry trade.  In carry trade, funds borrow in yen and invest in the U.S. stock market. Lately, they have been buying AI stocks. Japan's ruling party LDP has chosen Shigeru Ishiba as its new leader. Ishiba is the next prime minister of Japan. In The Arora Report analysis, yen is rallying on the news as Ishiba is a supporter of BOJ.
In The Arora Report analysis, this development is negative for the carry trade and positive for the yen position using ETF Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) in The Arora Report&#8217;s ZYX Allocation.
<h3 class="wp-block-heading">Magnificent Seven Money Flows</h3>
In the early trade, money flows are positive in Apple Inc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/AAPL#NASDAQ">AAPL</a>), Alphabet Inc Class C (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/GOOG#NASDAQ">GOOG</a>), Microsoft Corp (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/MSFT#NASDAQ">MSFT</a>), and Tesla Inc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TSLA#NASDAQ">TSLA</a>).
In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/AMZN#NASDAQ">AMZN</a>), Meta Platforms Inc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/META#NASDAQ">META</a>), and NVDA.
In the early trade, money flows are positive in SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) and Invesco QQQ Trust Series 1 (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>).
<h3 class="wp-block-heading">Momo Crowd And Smart Money In Stocks</h3>
Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GLD#NYSE">GLD</a>).  The most popular ETF for silver is iShares Silver Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SLV#NYSE">SLV</a>).  The most popular ETF for oil is United States Oil ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/USO#NYSE">USO</a>).
<h3 class="wp-block-heading">Bitcoin</h3>
Bitcoin (CRYPTO: <a class="ticker" href="https://www.benzinga.com/quote/btc/usd">BTC</a>) is on track to have the best September ever.
<h3 class="wp-block-heading">Protection Band And What To Do Now</h3>
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges.&nbsp; The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.&nbsp; If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash.&nbsp; A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.&nbsp; When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.&nbsp; High beta stocks are the ones that move more than the market.
<h3 class="wp-block-heading">Traditional 60/40 Portfolio</h3>
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less.&nbsp; Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever <a href="https://thearorareport.com/generate-wealth-newsletter-benzinga">Generate Wealth Newsletter</a>.

Market Summary

SMCI

Personal Income And Spending Disappoint, Super Micro Computer Lesson, BOJ Supporter As Japan PM

The U.S. dollar plunged to a 17-month low against the Chinese yuan after the Federal Reserve slashed rates as the People&#8217;s Bank of China held them steady overnight, raising pressures on interest-rate divergences between the <a href="https://www.benzinga.com/topic/china">world&#8217;s two major economies. </a>
The People Bank of China (PBoC) opted to hold the one-year loan prime rate (LPR)—a critical benchmark for most corporate and household loans—at 3.35% during its September fixing. The five-year LPR, a reference for property mortgages, also remained steady at 3.85%.
According to the latest monetary report, China's economy grew by 5% year over year in the first half of 2024, showing resilience despite a complex global environment.
Inflation remained subdued, with the consumer price index (CPI) increasing by just 0.1% year-over-year. The central bank noted that while economic performance was stable, domestic issues such as &#8220;insufficient effective demand&#8221; and &#8220;the transition to new growth drivers&#8221; continue to challenge the economy.
The PBoC&#8217;s accommodative monetary stance is designed to provide necessary financial support for a sustainable economic recovery. However, it highlighted that external conditions remain &#8220;complex, grim, and uncertain,&#8221; contributing to a cautious approach to navigating headwinds.
<h3 class="wp-block-heading">Chinese Stock Market Performance</h3>
Chinese domestic stocks, as tracked by the Shanghai Composite Total Return Index, closed flat for the day, reflecting market uncertainty. However, offshore Chinese stocks fared better, with Hong Kong-listed entities, tracked via the iShares MSCI Hong Kong Index Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/EWH#NYSE">EWH</a>), advancing by more than 1%.
In U.S. premarket trading, major Chinese stocks listed on American exchanges also saw gains:
<ul>
<li>XPeng Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XPEV#NYSE">XPEV</a>): +3.3%</li>
<li>Li Auto Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/LI#NASDAQ">LI</a>): +1.5%</li>
<li>Alibaba Group Holdings Ltd. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BABA#NYSE">BABA</a>): +1.3%</li>
<li>Tencent Music Entertainment Group (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/TME#NYSE">TME</a>): +0.8%</li>
</ul>
<h3 class="wp-block-heading">Bank of Japan Holds Rates; Yen Slips</h3>
In Eastern Asia, the Bank of Japan (BoJ) also held interest rates steady at 0.25%, aligning with market expectations. 
Japan's economy showed a moderate recovery, though signs of weakness were observed in certain sectors, according to the BoJ statement.
On the inflation front, Japan's core CPI (excluding fresh food) has risen by 2.5-3.0% year-over-year, driven by wage increases and moderate price hikes in services.
Following this announcement, the Japanese yen, tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>), fell by over 1% against the U.S. dollar. Meanwhile, Japanese equities rallied, with the Nikkei 225 index, as represented by the iShares MSCI Japan Index Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/EWJ#NYSE">EWJ</a>), surging by 1.5% after a 3% gain in the earlier session.
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</ul>
Photo: Shutterstock

Global

BABA

XPEV

Interest Rate Divergence Weakens Dollar To 17-Month Low Against Yuan: XPeng, Li Auto Among 4 Stock Movers

The world's leading central banks have opened a fresh phase of interest rate cuts, spurred by a softening in<a href="https://www.benzinga.com/topic/inflation"> inflation across advanced economies.</a>
With inflation sliding closer to target levels, policymakers are keen to unwind some of the policy restrictiveness that's become a drag on growth. 
But a significant outlier on the global monetary scene is raising eyebrows—and concerns—for an interest-rate-fueled rally in the stock market.
On Thursday, the European Central Bank (ECB) took its turn, delivering a second 25 basis point rate cut following a similar move in June. 
While ECB President Christine Lagarde stopped short of promising more cuts, she hinted that future decisions would be data-driven. 
However, Frankfurt doesn't have the luxury of dragging its feet: growth is already on life support, and Germany, the region's economic heavyweight, is teetering on the edge of a recession.
"We still think that data will end up pushing the ECB to accelerate the cutting cycle," said Bank of America's European economist Ruben Segura-Cayuela in a post-meeting note.
<h3 class="wp-block-heading">Global Central Banks In Sync, Almost</h3>
Earlier this month, the Bank of Canada trimmed its key interest rate by 25 basis points to 4.25%. Policymakers there flagged concerns about missing their inflation targets on the downside—something that would have been unthinkable just a year ago, when inflation overshoot was the name of the game.
Meanwhile, an interest rate cut from the Federal Reserve next week is practically a done deal. 
The only questions lingering for markets now are the magnitude and pace: Will the Fed cut by 25 or 50 basis points? Will it move at every meeting or take a more gradual, every-other-meeting approach?
The Bank of England remains a tight call, with economists forecasting a razor-thin 5-4 vote in favor of a rate cut next week.
"At this stage, markets are only discussing the magnitude and sequencing of this cut and those to follow. But regardless of the outcome, global monetary policy convergence is set to begin," Bank of America economist Antonio Gabriel noted recently.
According to Bank of America this newfound global monetary coordination is likely to weaken the dollar from its historically elevated levels, but any dollar decline could be tempered by potential U.S. policy shifts after the upcoming election. 
<h3 class="wp-block-heading">The Bank of Japan&#8217;s Outlier Stance: A Wildcard For Markets</h3>
The one glaring outlier in this synchronized easing spree? The Bank of Japan (BOJ). 
Tokyo has clearly decided it's not playing by the same rulebook. 
While the world's major central banks are cutting, the BOJ hiked rates in July—its second hike this year following a move in March—and signaled that more hikes could be on the horizon. With annual inflation running at 2.8%, well above the BOJ's 2% target, Japan's monetary policy looks set on a divergent path.
BOJ Governor Kazuo Ueda reiterated earlier this month that the BOJ would continue raising rates if the economy and inflation behave as expected.
Ed Yardeni, the veteran market strategist, weighed in on this divergence, pointing to the ripple effects it's having across markets: "The carry trade is still unwinding. Expectations that the Fed will lower rates while the BOJ continues to hike have boosted the yen, forcing traders to unwind their carry trades."
For those not fluent in financial jargon, the carry trade refers to the strategy of borrowing yen at near-zero interest rates to invest in higher-yielding assets elsewhere, such as long-term Treasuries or even stocks. Now, with the yen appreciating, those trades are being unwound, sparking a rout in some of the market&#8217;s most richly valued stocks.
Yardeni highlighted a key inverse correlation between the yen and the Nasdaq 100, which has been holding since the start of the year.
Whenever the Japanese currency, as tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>), strengthens, the latter, as monitored through the Invesco QQQ Trust, Series 1 (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>), weakens. 
<h3 class="wp-block-heading">Chart: Inverse Relationship Between Japanese Yen And U.S. Tech Stocks</h3>
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="442" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/12154252/image-101-1024x442.png" alt="" class="wp-image-545503" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/12154252/image-101-1024x442.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/12154252/image-101-300x129.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/12154252/image-101-768x331.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/12154252/image-101-1536x662.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/12154252/image-101.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption">Image: <a href="https://bzresearch.myclickfunnels.com/benzinga-pro-content-webinar-registration/?utm_source=BZprocontent091224&amp;t=be2bearmibe3na1">Benzinga Pro</a></figcaption></figure>
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<li><a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/09/40823561/this-under-the-radar-defensive-ai-sector-quietly-outperforms-all-others-despite-rec">This Under-The-Radar Defensive AI Sector Quietly Outperforms All Others, Despite Receiving &#8216;No Love&#8217; From Investors</a></li>
</ul>
Image created using artificial intelligence via Midjourney.

Equities

Eurozone

Major Central Banks Slash Rates In Sync, But One Holdout Threatens To Derail Bulls' Momentum: 'Carry Trade Is Still Unwinding'

The U.S. Treasury market rallied sharply on Friday after August labor data showed weaker-than-expected job growth, bolstering bets on Federal Reserve <a href="https://www.benzinga.com/topic/interest-rates">interest rate cuts. </a>
The U.S. economy added 142,000 nonfarm payrolls last month, an increase from 89,000 in July but missing the expected increase to 160,000. The unemployment rate ticked down by 0.1% to 4.3% as expected, while wages displayed higher-than-forecasted growth.
Market-implied odds of a 50-basis-point rate cut in September surged to 61% as of 11:05 a.m. in New York, overtaking the 39% probability of a 25-basis-point cut, according to the CME Group&#8216;s FedWatch data.
<h3 class="wp-block-heading">September Rate-Cut Probabilities After August Jobs Data</h3>
<figure class="wp-block-table is-style-stripes"> 
<table>
<tbody>
<tr>
<td>September Rate Cut</td>
<td>Now&#x2A;</td>
<td>1 day ago (Sept. 5, 2024)</td>
<td>1 Week ago (Aug. 30, 2024)</td>
</tr>
<tr>
<td>50 basis points (0.5%)</td>
<td>61%</td>
<td>40%</td>
<td>30%</td>
</tr>
<tr>
<td>25 basis points (0.25%)</td>
<td>39%</td>
<td>60%</td>
<td>70%</td>
</tr>
</tbody>
</table>
<figcaption class="wp-element-caption">&#x2A; Data as of Sept. 6, 2024 11:05 a.m. ET, CME FedWatch</figcaption></figure>
Traders poured into bonds amid growing expectations of declining interest rates, driving yields sharply lower across the Treasury curve.
The policy-sensitive two-year yield dropped over 10 basis points, reaching 3.59% at 11:15 a.m. in New York, its lowest level since March 2023.
The 10-year Treasury yield fell 6 basis points to 3.67%, marking its lowest point since June 2023.
This movement has led to a positive slope in the Treasury yield curve from the 10-year onward, effectively ending the more than two-year period of yield curve inversion.
<h3 class="wp-block-heading">Chart: US Yield Curve Normalizes, Ending 2-Year Inversion</h3>
<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1024" height="508" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/06112245/image-57-1024x508.png" alt="" class="wp-image-534918" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/06112245/image-57-1024x508.png 1024w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/06112245/image-57-300x149.png 300w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/06112245/image-57-768x381.png 768w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/06112245/image-57-1536x762.png 1536w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/09/06112245/image-57.png 1920w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure>
<h3 class="wp-block-heading">Market Reactions</h3>
Rate-cut expectations and falling Treasury yields triggered sharp moves across asset classes, with bonds rallying, the dollar weakening against the yen and equity markets sliding.
&#8220;No sooner than the payroll print hit, the algorithms marched into high gear, pushing Treasury yields lower as the disappointing headline number, coupled with a series of downward revisions, suggested a more dire economic backdrop perhaps requiring a heavier dose of Fed medicine on Sept. 18,&#8221; said Quincy Krosby, chief global strategist for LPL Financial.
Markets are wrestling with whether the August payroll data signals a labor market returning to pre-COVID norms or an economy losing critical momentum, Krosby said. 
<ul>
<li>Treasury-related ETFs surged, with the iShares 20+ Year Treasury Bond ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TLT#NASDAQ">TLT</a>) rising 1.1% to $100.65, on pace for its highest close since late July 2023.</li>
<li>The Japanese yen strengthened as well, with the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) gaining over 1%, poised to close at its highest level since early January 2024.</li>
<li>Volatility spiked, as the CBOE Volatility Index (VIX) jumped 14% to 23.</li>
<li>Wall Street flipped to the red, with the SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) dropping 1.5% on Friday, extending its weekly decline to 3.9%, on track for the worst weekly performance since March 2023.</li>
<li>Tech stocks were hit hardest, with the Invesco QQQ Trust (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>) down 2.4%, pushing its weekly loss past 5%.</li>
<li>Nvidia Corp. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/NVDA#NASDAQ">NVDA</a>) tumbled 4%, extending its weekly loss to 14%, its worst performance in two years.</li>
</ul>
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Photo via Shutterstock.

Bonds

Treasury Yields Plunge, TLT ETF Tops $100, VIX Spikes As 50-Basis-Point Rate Cut Odds Soar In Response To Jobs Data

Lower-than-expected private employment growth in August triggered positive reactions Thursday in interest rate-sensitive assets like gold and the Japanese yen, while pushing Treasury yields lower as traders bolster their bets on a 50-basis-point rate cut by the <a href="https://www.benzinga.com/topic/interest-rates">Federal Reserve this month.</a>
U.S. private employers added 99,000 jobs in August, the lowest reading since January 2021 and down from a downwardly revised 111,000 in July, the ADP <a href="https://www.benzinga.com/economics/macro-economic-events/24/09/40728795/private-employment-grows-by-99-000-in-august-sharply-misses-forecasts-of-140-000-">National Employment report revealed. </a>
The outcome fell short of the predicted 140,000, highlighting a surprising cooling in labor market conditions last month.
While weekly jobless claims were in line with expectations and offered little new insight, signs of further weakness in the labor market surfaced in the Challenger Job Report, which recorded 75,891 job cuts in August — a sharp 193% increase from the 25,885 cuts in July.
A day earlier, official statistics revealed that job openings fell to 7.673 million in July,&nbsp;the lowest in over three years, with vacancies now almost closing the gap with <a href="https://www.benzinga.com/economics/macro-economic-events/24/09/40711148/july-job-openings-fall-to-3-year-lows-gap-with-unemployment-narrows-to-near-parit">the level of unemployment. </a>
Following the slew of Thursday&#8217;s labor market data, market-implied probabilities for a 50-basis-point cut surged to 45%, as per CME Group&#8216;s FedWatch tool, ahead of the highly anticipated official jobs report on Friday.
<h3 class="wp-block-heading">Market Reactions</h3>
Treasury yields moved lower across the board, with the policy-sensitive two-year yield down by 3 basis points to 3.72%, hitting the lowest yield in a month.
The benchmark 10-year yield dropped to 3.73%, marking its lowest level in a month. It also officially surpassed the two-year yield for the first time since July 2022, marking the end of the U.S. yield curve inversion.
In premarket trading, the iShares 20+ Year Treasury Bond ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TLT#NASDAQ">TLT</a>) was 0.3% higher at 9:00 a.m. in New York, after closing 1.3% higher on Wednesday.
The Japanese yen rose against the dollar, amid narrowing yield differentials between the two regions. The Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) was 0.4% higher. 
Gold prices rallied on the back of disappointing employment data, with the commodity surging to $2,515 per ounce. The SPDR Gold Trust ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GLD#NYSE">GLD</a>) was up by 0.9%.
U.S. major indices are set to open slightly in the red, with S&amp;P 500 futures down 0.1% and Nasdaq 100 futures slipping 0.3%.
Sector-wise, technology stocks, as tracked by the Technology Select Sector SPDR Fund&nbsp;(NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLK#NYSE">XLK</a>), lagged, down 0.6%. Utilities, as tracked by the Utilities Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLU#NYSE">XLU</a>), strengthened the most, up 0.7%. 
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</ul>
Illustration created using artificial intelligence via Midjourney.

Commodities

Gold Rallies, Yen Surges, Treasury Yields Fall As Disappointing Payrolls Data Supports Large Rate-Cut Bets

The Japanese yen sent shockwaves through the markets at the start of September, triggering alarms for traders already on edge in what is shaping up to be <a href="https://www.benzinga.com/24/09/40676774/september-market-seasonality-why-this-month-is-historically-the-toughest-for-investors">a highly volatile month.</a>
The yen, as tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>), appreciated over 0.9% by 11:30 a.m. ET, fueled by hawkish remarks overnight from Bank of Japan (BoJ) Governor Kazuo Ueda and disappointing U.S. manufacturing data.
In a parliamentary speech Tuesday, Ueda reaffirmed that the central bank would continue to raise interest rates if the economy and inflation evolve as expected. Ueda reiterated that the economic environment remains accommodative, despite the July rate hike, as real interest rates continue to be significantly negative.
&#8220;Traders hoping for a dovish pivot didn't get it,&#8221; said analyst Michael Gayed.
According to Gayed, with the Federal Reserve likely to cut rates by 75-100 basis points by the end of the year and the BoJ potentially hiking at least once more during the same period, the interest rate gap could narrow significantly.
Gayed also added, &#8220;This could ultimately trigger the next rally for the yen and potentially drive stock prices higher in the longer term.&#8221;
<h3 class="wp-block-heading">US Manufacturing Sector Contracts, Analysts See Mixed Yen Performance</h3>
In August, the U.S. manufacturing sector remained in a contractionary phase for the fifth consecutive month. However, the pace of decline eased slightly compared to July, according to the <a href="https://www.benzinga.com/economics/macro-economic-events/24/09/40689835/us-manufacturing-activity-extends-contraction-for-fifth-month-demand-continues-to">Institute for Supply Management (ISM)</a>.
&#8220;This should be positive news for equities and keeps the door open for more rate cuts,&#8221; said Gina Bolvin, president of Bolvin Wealth Management Group.
Jeffrey Roach, chief economist at LPL Financial, commented, &#8220;Manufacturing employment contracted for the third consecutive month as activity in the sector slowed. While manufacturing now represents a smaller portion of the macroeconomy than in previous cycles, investors should still prepare for a broader slowdown throughout the remainder of the year.&#8221;
Treasury yields fell sharply following Tuesday&#8217;s data release. The yield on the 10-year bond fell 7 basis points to 3.85%. 
Bloomberg reported that Arif Husain, head of fixed income at T. Rowe Price, expects further volatility as the yen-dollar carry trade unwinds, predicting more episodes similar to the one seen in early August.
Husain believes the yen is on an appreciating trend due to Japan&#8217;s ongoing structural transformation, driven by demographic shifts. He also highlighted that persistent inflation is likely to accelerate corporate reforms and influence household asset allocation.
&#8220;The ideal macro environment for yen appreciation usually occurs when U.S. real rates and equities decline together, typically during a U.S. recession,&#8221; said Kamakshya Trivedi, an economist at Goldman Sachs.
Contrarily, Daysuke Takato, an economist at Bank of America, argued, &#8220;The yen&#8217;s weakness has been driven by two main factors: the interest rate differentials between Japan and the rest of the world, and structural capital outflows from Japan.
While the potential for further yen depreciation may be limited in the short term, we believe the yen will resume its downtrend by year-end, as structural outflows persist.&#8221;
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Image: Shutterstock

Japanese Yen Rallies On Bank Of Japan's Rate Hike Pledge, US Manufacturing Activity Contraction

The U.S. dollar, oil prices and tech stocks surged Thursday following an upward revision of the second-quarter real gross domestic product growth to 3%, signaling the continued strength<a href="https://www.benzinga.com/government/24/08/40624663/us-economy-expands-by-3-in-q2-surpasses-earlier-estimates-jobless-claims-little-moved-last-week"> of the U.S. economy.</a>
More defensive assets like bonds and the Japanese yen fell as expectations for interest rate cuts were slightly tempered.
What Happened: The U.S. economy continues to display robust health, boasting a notable real GDP growth rate of 3% in the second quarter, revised higher from the initial estimate of 2.8% on Thursday. This represents more than double the 1.4% growth recorded in the first quarter, marking the eighth consecutive quarter of sequential growth for the U.S. economy.
The boost was primarily driven by consumer spending, which surged by 2.9% in the second quarter, an upward revision from the previously reported 2.3% and significantly higher than the 1.5% growth in the first quarter. Corporate profits also showed improvement, flipping from a 2.7% contraction in the first quarter to a 1.7% expansion in the second.
Positive signs also emerged from price pressures, as Personal Consumption Expenditure prices were revised downward in the second estimate.
The revised data also included downward adjustments to nonresidential fixed investment (4.6% vs. 5.2% earlier reported), exports (1.6% vs. 2%), private inventory investment (7.5% vs. 8.4%), government spending at both federal (3.3% vs. 3.9%) and local (2.3% vs. 2.6%) levels, and residential fixed investment (negative 2% vs. negative 1.4%). Imports were adjusted slightly higher (7% vs. 6.9%).
Why It Matters: The resilience of the U.S. economy reduces recession risks that had surfaced earlier this month following a cooler-than-expected July jobs report. 
For markets sensitive to domestic economic conditions, such as small- and medium-cap stocks, a healthy economy signals improved risk sentiment among investors.
The concurrent decline in price pressures bolsters the Federal Reserve&#8217;s confidence that inflation is trending toward its 2% target, paving the way for a September interest rate cut. 
The strong economic activity also represents a factor that could refrain the Fed from making large or swift rate cuts to avoid reigniting inflationary pressures.
Market-implied odds for a 50-basis-point rate cut in September slightly eased from 38% a day ago to the 32.5%, as per CME Group&#8216;s FedWatch data. 
Market Reactions:
<ul>
<li>U.S. Dollar: The U.S. Dollar Index, tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/UUP#NYSE">UUP</a>), rallied 0.4% in response to the GDP data, building on a 0.5% gain from Wednesday.</li>
<li>Bonds: Treasury yields edged higher, causing the iShares 20+ Year Treasury Bond ETF (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TLT#NASDAQ">TLT</a>) to decline by 0.5%.</li>
<li>Japanese yen: The USD-JPY pair rose 0.7% on Thursday to 145.35 levels. The Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) fell 0.7%. </li>
<li>Stocks: The S&amp;P 500 as tracked by the SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) was up by 0.3%. The tech-heavy Nasdaq 100, tracked by the Invesco QQQ Trust, Series 1 (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>), climbed 0.8%, despite a 2.2% drop in Nvidia Corp. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/NVDA#NASDAQ">NVDA</a>).</li>
<li>Sector Performance: The Technology Select Sector SPDR Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/XLK#NYSE">XLK</a>) led sector gains, up 0.9%.</li>
<li>Oil: The United States Oil Fund (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/USO#NYSE">USO</a>) rose by 2.2%, fully reversing Wednesday&#8217;s losses.</li>
<li>Gold: The SPDR Gold Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GLD#NYSE">GLD</a>) rose 0.4% to $2,515 per ounce.</li>
</ul>
Read Next:
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<li><a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/08/40624107/traders-brace-for-feds-favorite-inflation-report-friday-july-price-pressures-expect">Traders Brace For Fed&#8217;s Favorite Inflation Report Friday: July Price Pressures Expected To Edge Higher</a></li>
</ul>
Illustration created using artificial intelligence via MidJourney.

Select Sector SPDR-Consumer Discretionary

US Dollar, Oil Prices, Tech Stocks Rise As GDP Roars By 3% In Q2; Bonds, Yen Slip As Bets For Large Rate Cuts Ease

The dollar-yen exchange rate experienced hours of turbulence after the Bank of Japan delivered hawkish remarks overnight, just ahead of Fed Chair Jerome Powell&#8216;s highly anticipated speech at Jackson Hole, set for <a href="https://www.benzinga.com/economics/macro-economic-events/24/08/40513380/could-powells-jackson-hole-speech-keep-the-door-open-for-50-basis-point-rate-cut">10:00 a.m. ET on Friday.</a>
During a parliamentary hearing on Friday, BoJ Governor Kazuo Ueda reiterated his commitment to keep raising interest rates if inflation continues to align with the country&#8217;s 2% target, indicating that recent market volatility would not deter the bank&#8217;s long-term strategy for rate hikes.
However, Ueda warned that market jitters could influence the BoJ&#8217;s inflation forecasts, indicating that fluctuations in the yen and stock prices will be pivotal in determining the timing of the next rate hike.
&#8220;Markets at home and abroad remain unstable, so we will be highly vigilant to market developments for the time being,&#8221; Ueda stated.
This seems more in line the previous BoJ&#8217;s reassurances when earlier this month Deputy Governor Shinichi Uchida had vowed not to raise interest <a href="https://www.benzinga.com/markets/asia/24/08/40223986/traders-resume-yen-dollar-carry-trade-as-bank-of-japan-pledges-no-rate-hikes-during-market-volatilit">rates if market volatility persisted.</a>
The yen, tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>), gained approximately 0.8% between 8:00 p.m. ET on Thursday and 2:50 a.m. ET on Friday, before slightly paring back those gains.
On Thursday, Japan&#8217;s latest inflation report showed that consumer prices rose by 2.8% year-over-year in July 2024, unchanged for the third straight month and holding at their highest level since February.
<h3 class="wp-block-heading">A Look At The Markets, But Also At The Economy</h3>
Although Ueda stated that the BoJ is monitoring market developments, he also reiterated that if the economy shows clear evidence that prices are moving toward the target, there is no change in the central bank&#8217;s basic stance on normalizing its accommodative monetary policy.
This means that the BoJ remains committed to gradually raising borrowing costs from their current ultra-low levels.
&#8220;Japan&#8217;s short-term rates are very low. If the economy is in good shape, they will move up to levels deemed neutral,&#8221; Ueda commented, adding that there is still &#8220;very high uncertainty on where rates will eventually rise to.&#8221;
<h3 class="wp-block-heading">BoJ, Fed On Different Policy Paths</h3>
On July 31, the BoJ hiked its key short-term interest rate by 15 basis points to 0.25%, and opted to halve its bond-buying program to JPY 3 trillion from next year. 
This decision, along with unexpectedly weak U.S. economic data, triggered an unwinding of the yen-dollar carry trade. Traders who had been betting on interest-rate differentials between the Fed and the BoJ were hit hard by the rate reversal and subsequent margin calls.
The next BoJ meeting is scheduled for Sept. 20, just two days after the Federal Open Market Committee (FOMC) meeting. The U.S. central bank is widely expected to lower interest rates, with market-implied probabilities favoring a 25-basis-point cut. If the BoJ raises interest rates, it could deliver another blow to the dollar-yen pair, further challenging the resilience of the carry trade.
Read now: 
<ul>
<li><a href="https://www.benzinga.com/general/hedge-funds/24/08/40470248/hedge-funds-swap-yen-for-dollar-in-new-carry-trade-strategy-report">Hedge Funds Swap Yen For Dollar In New Carry Trade Strategy: Report</a></li>
</ul>
Image: Shutterstock

Yen-Dollar Carry Trade Shakes Ahead Of Powell's Speech As BoJ's Ueda Hints At Continued Rate Hikes

The July Consumer Price Inflation report made another step toward the Federal Reserve&#8217;s 2% target, though less pronounced than June&#8217;s, sustaining optimism for <a href="https://www.benzinga.com/topic/inflation">imminent interest rate cuts.</a>
Last month, a basket of goods and services purchased by U.S. consumers rose by 2.9% year-over-year, slightly below the previous and expected 3%, marking the fourth consecutive decline in annual inflation and the <a href="https://www.benzinga.com/economics/macro-economic-events/24/08/40365730/july-inflation-rate-falls-more-than-expected-supports-hopes-for-large-fed-rate-cu">lowest rate since March 2021.</a>
The annual core inflation rate also eased as anticipated, from 3.3% to 3.2%, the lowest since April 2021. 
However, the July report was marred by an increase in the shelter component, which, due to its significant weight in the basket, accounted for about 90% of the headline inflation rise.
The decline in annual inflation rates wasn&#8217;t sufficient to bolster expectations for a 50-basis-point rate cut in September. 
Market-implied probabilities for such a substantial cut dropped from 50% to 43% following the report, while the likelihood of a smaller 25-basis-point cut increased to 57%.
<h3 class="wp-block-heading">Market Reactions: Stocks Rise, Yields Steady, But Dollar Strengthens Against Yen</h3>
The July inflation data sparked a positive reaction in stocks, especially in the tech sector, with small caps outperforming their larger-cap counterparts. Treasury yields remained largely stable, while the U.S. dollar gained ground against the low-yielding Japanese yen.
Here are the premarket price reactions of the following exchange-traded funds (ETFs) to the inflation data:
<ul>
<li>The SPDR S&amp;P 500 ETF Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) was up 0.2% at 09:10 a.m. in New York. Major premarket gainers were Kellanova (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/K#NYSE">K</a>) and Cardinal Health Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/CAH#NYSE">CAH</a>), up 7.2% and 5.5% respectively. </li>
<li>The tech-heavy Invesco QQQ Trust (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/QQQ#NASDAQ">QQQ</a>) rose 0.3%. Top gainers were Arm Holdings plc (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/ARM#NASDAQ">ARM</a>) and Micron Technology Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/MU#NASDAQ">MU</a>) up 3.1% and 3%, respectively. </li>
<li>Semiconductors were the strongest-performing industry, with the VanEck Semiconductor ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SMH#NYSE">SMH</a>) up 0.9%. Micron Technology Inc. and ASML Holding N.V. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/ASML#NASDAQ">ASML</a>) led gains, with the latter up 2.1%. </li>
<li>The iShares Russell 2000 ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/IWM#NYSE">IWM</a>) rallied 0.5%, with Victoria&#8217;s Secret &amp; Co. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/VSCO#NYSE">VSCO</a>) and AnaptysBio, Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/ANAB#NASDAQ">ANAB</a>) making the larger gains in the premarket, up 16% and 13%, respectively. </li>
<li>The Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>) fell 0.2%.</li>
</ul>
Read now: 
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<li><a href="https://www.benzinga.com/etfs/broad-u-s-equity-etfs/24/08/40355203/stocks-now-dismiss-recession-fears-but-bond-markets-tell-investors-to-stay-on-alert">Stocks Now Dismiss Recession Fears, But Bond Markets Tell Investors To Stay On Alert</a></li>
</ul>
Image created using artificial intelligence via Midjourney.

Large Cap

Small Cap

ANAB

ASML

VSCO

S&P 500 Rises, Small Caps Outperform As July Consumer Price Index Fuels Fed Rate Cut Hopes: 5 ETFs to Watch Wednesday

The U.S. dollar-Japanese yen exchange rate endured one of its most turbulent weeks in recent years, with sharp swings driven by pivotal economic events that have left traders reassessing the future of the <a href="https://www.benzinga.com/markets/asia/24/08/40223986/traders-resume-yen-dollar-carry-trade-as-bank-of-japan-pledges-no-rate-hikes-during-market-volatilit">dollar-yen carry trade.</a>
The USD/JPY pair opened the week at 146.36, but quickly plunged to a low of 141.68 on Monday as traders fully priced in a 50-basis-point rate cut by the Federal Reserve in September, with some even speculating on an emergency intermeeting cut. 
The dollar rebounded against the yen later in the week, buoyed by dovish remarks from the Bank of Japan (BoJ) and U.S. economic data that pushed back against fears of an imminent recession.
By the end of the week, the yen, as tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/FXY#NYSE">FXY</a>), has largely remained unchanged from its previous week&#8217;s close.
This volatile week has traders questioning how much carry trade positioning is left in USD/JPY and whether it&#8217;s time to re-enter the long dollar-short yen trade as a hedge against potential U.S. inflation surprises, or if shorting USD/JPY might be a more effective strategy to guard against a possible recession.
<h1 class="wp-block-heading">Analyst Weigh On Yen-Dollar Carry Trade Strategy</h1>
Adam Turnquist, chief technical strategist for LPL Financial, explained that &#8220;ultra-low rates and easy monetary policy made the yen an attractive funding currency for the carry trade,&#8221; where investors borrow in low-yield currencies like the yen to fund investments in higher-yielding securities elsewhere, such as U.S. Treasuries.
However, recent tightening measures from the BoJ have &#8220;pulled the proverbial thread on this crowded trade, and it started to unravel,&#8221; sparking a surge in yen buying as investors covered short positions.
According to Turnquist, estimating the size of the yen carry trade is challenging due to the opaque nature of currency positioning and transactions. The overall yen borrowing could range from $1 to $4 trillion, with recent reports suggesting that 75% of carry trades have been closed following this week&#8217;s volatility events. 
Turnquist indicated USD/JPY is no longer on an uptrend, implying that the risk of additional downsides remains elevated.
It&#8217;s too early to consider the recent rebound as anything more than a &#8220;relief rally off oversold levels.&#8221; He stated that a close below the 141 support level could signal another potential leg lower, while a rally above 152 would suggest a return to the previous uptrend, reducing carry trade volatility and downside risk.
Read Also: <a href="https://www.benzinga.com/analyst-ratings/analyst-color/24/08/40199218/yen-carry-trade-is-only-halfway-unraveled-wall-street-analyst-says-how-much-more-ro">Yen &#8216;Carry Trade&#8217; Is Only Halfway Unraveled, Wall Street Analyst Says: How Much More Room For Traders To Get Pummeled?</a>
David Morrison, senior market analyst at Trade Nation, observed that the USD/JPY pair hit its lowest level since the beginning of the year on Monday but has since rallied nearly 4%, indicating that the market has &#8220;steadied and most of the unwinding has been completed.
However, Morrison cautioned there is still concern that &#8220;there could be more unwinding of the yen carry-trade to come.&#8221; If this occurs, it could lead to further yen strength, accelerating the unwinding process and putting additional downward pressure on risk assets.
Morrison also noted that the BoJ released minutes from its latest monetary policy meeting, where it unexpectedly tightened policy. Although the minutes suggested that further rate hikes could be on the horizon, the market largely ignored this as dovish comments from the BoJ&#8217;s deputy governor &#8220;effectively neutralized the minutes.&#8221;
Shusuke Yamada, a foreign exchange analyst at Bank of America, suggested that much of the short-term yen carry-trade unwinding &#8220;has run its course&#8221; based on positioning measures and signs of stabilization in equity markets.
However, Yamada warned that &#8220;cyclical hedgers would sell USD/JPY&#8217;s rally to hedge against a U.S. hard-landing scenario.&#8221;
Yamada also highlighted structural outflows, such as corporate foreign direct investment (FDI) and retail investors&#8217; outward equity investments, &#8220;remain intact&#8221; as these trades are not driven by short-term interest rate differentials.
Bank of America has revised its end-2024 USD/JPY forecast to 155 but maintains a &#8220;structurally bearish yen view.&#8221;
Read Now:
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<li><a href="https://www.benzinga.com/markets/asia/24/08/40274194/mohamed-el-erian-slams-bank-of-japans-soft-tone-pushes-for-reduction-of-risky-yen-carry-trades">Mohamed El-Erian Slams Bank Of Japan&#8217;s Soft Tone: Pushes For Reduction Of Risky Yen Carry Trades</a></li>
</ul>
Photo: Shutterstock

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