• Yen skyrockets as Nikkei tumbles Japanese stock markets plunged overnight, with the Nikkei 225 down more than 5% as investors concerns on the global economy continued to mount. Bank shares are leading the sell-off, perhaps due to persistent worries that the profitability of Japanese banks will take a hit in a negative interest rate environment. Safe haven assets, and particularly the yen, posted significant gains as investors sought shelter in the midst of this turbulence. USD/JPY dropped below the 116.00 key barrier for the first time since November 2014. The collapse in Japan’s stock market follows the plunge in European and US equities yesterday. If the risk-off environment continues to run through the European and US trading sessions today, USD/JPY could fall even lower. That could put immense pressure on the Bank of Japan to combat further appreciation of the yen, as a significantly stronger currency would pose downside risks to the inflation outlook and the competitiveness of Japanese firms. Having eased into the negative territory at its last policy meeting, the Bank may initially try to talk-down the currency, perhaps by suggesting that further appreciation could warrant policy action.
• Today’s highlights: The German industrial production figure fell even further in December from the previous month, against expectations of a minor rise.
• The UK trade deficit is forecast to have narrowed a bit in December from the previous month. However, this is usually not a major market mover.
• In the US, the Job Opening and Labor Turnover Survey (JOLTS) report for December is due to be released and the forecast is for a slight decline in the number of job openings. This survey will also report the “quit rate”, which measures workers who voluntarily resign, and is a closely watched indicator of how strong the job market is. The NFIB Business Optimism Index for January is coming out as well. Even though this indicator is not a major market mover, it is worth watching because of the Fed’s emphasis on employment, as small businesses employ the majority of people in the US. The wholesale inventories for December are also coming out.
• As for the speakers, the French and German central bank governors as well as finance ministers will hold an economic council. On Monday, the two heads of the central banks wrote in a German newspaper that the Euro area needs to push forward with structural reforms, including the creation of a Eurozone finance ministry. Any signs of strong political determination to push for the creation of such an institution could prove supportive for the common currency. ECB Governing Council member Luis Linde also speaks.