Amazon Hits $2T as Yen Drops

Major economic shifts have been shaking the markets in recent days. In the wake of the USD/JPY forex pair’s recent bumpy ride and big tech industry leader Amazon’s hitting a new milestone, traders may be asking themselves what’s next. Let’s take a closer look at the key factors affecting the markets:

Yen Takes a Tumble

On June 26th, Japan's national currency, the yen fell to a nearly 40-year nadir, intensifying speculation that Japanese authorities might soon need to make use of the policy tools at their disposal to prop its value up in the face of significant downward pressures. In 2024 so far, the yen has fallen over 12%, notwithstanding the Bank of Japan's interventions in April. This trajectory in the currency's value has been driving up import costs, straining Japanese consumers, and causing concern among business leaders in the country.

The persistent pressure on the yen is mainly due to the large interest rate gap between central bank policy in Japan, where borrowing costs are near zero, and those of the U.S.' Federal Reserve. This disparity has continued to impact the yen despite efforts to manage the decline. A key concern is the upcoming U.S. inflation report on June 28th, which will be crucial for future monetary policy decisions and could influence whether this trend continues.

According to experts, Japanese authorities have previously spent a record $61.1 billion on intervention and may have $200 billion to $300 billion available for future efforts should they be needed.

This week, Japanese officials have spoken openly about the risks posed by the yen's decline. Finance Minister Shunichi Suzuki emphasised close monitoring of the market and potential actions, while top currency official Masato Kanda reiterated readiness to intervene at any moment without targeting a specific level.

Some Japan watchers hold that authorities might be forced into action if the yen's decline becomes chaotic. Past interventions have attracted scrutiny, with the U.S. Treasury Department adding Japan to its "monitoring list" for foreign exchange practices, advocating that intervention should be reserved for exceptional circumstances.

Friday’s U.S. data might ease some pressure on the yen if core PCE inflation slows, potentially supporting a case for the Federal Reserve to lower borrowing costs this year. However, low market volatility at the moment could make immediate intervention a more distant prospect. As of the time of writing, the USD/JPY is up 1% over the past week. (Source: Japan Times)

Amazon Breaks New Record

On the other side of the Pacific, the key American index Nasdaq (US-TECH 100) got a boost from one of the biggest companies on its roster. On June 26th, Amazon (AMZN) became only the fifth American company to reach $2 trillion in market value, and enthusiasm among traders pushed its share price to an almost 4% gain by the ring of the closing bell. 

Over the past year, Amazon has inspired excitement among traders surrounding the company's investments in artificial intelligence (AI). Amazon is now a full member of the elite group of companies valued at over $2 trillion, alongside Alphabet (GOOG), Microsoft (MSFT), Apple (AAPL) and Nvidia. With Amazon's jump, the Nasdaq also registered a 0.25% rise over the course of the day.

Tech industry peer Nvidia (NVDA) recently hit a $3 trillion valuation, briefly becoming the most valuable company on Wall Street. Its chips, essential for many AI applications, have driven its soaring valuation. Similarly, Amazon's significant investments in AI have garnered global interest, focusing on business-oriented products such as AI models and the Q chatbot, available through its cloud computing unit, AWS.

Some experts believe that Amazon's latest record-breaking milestone can be attributed to its position as a key player in the growing fields of AI and cloud technology. CEO Andy Jassy recently emphasised the role of AI advances in fueling AWS’s growth, with projections being made for $100 billion in annual revenue. AWS’s growth had previously been stuck in a lower gear as companies reduced costs amid high inflation.

Amazon's $4 billion investment in the San Francisco-based AI company Anthropic aims to develop foundational models for generative AI systems. Additionally, Amazon designs and manufactures its own AI chips. Beyond its cloud business, Amazon has cut costs significantly since late 2022, laying off over 27,000 corporate employees across various divisions. The company's Q1 revenue and profits were bolstered by growth in AWS, its core retail business, and advertising, boosting investor confidence.

While there are external threats, such as the FTC's antitrust lawsuit, investors feel that these challenges are distant. For the moment, Amazon's star seems to be rising, but it is impossible to predict whether this trend will continue over the near- or medium-term.

In Conclusion

Both Japan’s currency struggles and Amazon’s record-breaking market value highlight the dynamic and unpredictable nature of global markets, leaving traders to ponder what the future holds. Wherever the various sectors of the global marketplace head in the weeks and months to come, investors will have to keep their eyes peeled.