In line with the Bank of Japan’s unchanged policy, the Asian stocks, led by the Japanese equities, have fallen with the strengthened Yen. Thanks to the surging Yen’s index. Just for instance, one of the largest manufacturers of electronic goods, Samsung Electronics Company, has dropped after its price target was lowered. With the central banks’ announcement, the Japan’s Topix index has declined by 0.8 percent. Further, Samsung, a heavy weight in the segment, has fallen by 3.2 percent on MSCI Asia Pacific Index. If we scrutinize the volatility and magnitude on the MSCI Asia Pacific Index lately, a drop of 0.4 percent could be realized.

As the investors are expecting more from the Bank of Japan, with the current economic stance, the market has been believing that the Japanese economy could be hurting itself sooner rather than later amidst the rise in yields and inflation expectations. The action taken by the Bank of Japan by negating the extensions of the loans to the lenders has ultimately pushed the Yen toward the north relative to the USD.

In line with the rising Yen, as the charm for the Japanese exporters has declined sharply, the Japanese and in broader sense, the Asian equity markets have been hit by this cross-currency valuation regime. It’s up to the central bank of Japan whether to reinforce the Yen’s value relative to the other currencies to support the export-orientation of the economy and not refrain itself from heading towards the north.

Irrespective of the monetary stimulus or reforms, what the markets react on is the strength of the currencies relative to different international currencies and eventually impact on the import-export regimes, finally contributing to the country’s balance of payment. As the global economy is completely based on the cross-currency valuation of the core economic nations globally, it’s the strength of an individual currency to shape the dynamics of the international trade and a country’s economic conditions. Now, let’s consider a situation for analysis. What might happen to the trade regime of the US and China if the Chinese currency, i.e., Yuan, would rise significantly relative to the USD? The floor is all yours for interpretation and analysis!