Ruble on the Decline
The ruble is diminishing in its appeal as the preferred currency of emerging-market investors due to Russia’s increasing tensions with the West. Stubborn inflation is also to blame for the decline.
Due to renewed concerns that Russia might invade Ukraine eight years after annexing Crimea, the currency has had the worst start of the year among other emerging market currencies. Various experts have highlighted risks, including inflationary spikes and sanctions after diplomatic efforts have failed.
This reversal will end the ruble’s reign as the most-performing currency in emerging market currencies last year. That was before geopolitics got into high gear. This also erodes the goodwill that investors have shown Russia in return for the proactive rate increases by the central bank. Investors are now less likely to return to overcrowded trade, as data from January shows a rebound in consumer prices.
CAD and Krone Looking Strong against USD
Russia is suspected of having carrying out the cyber-attack against Ukraine at the end of the previous week. However, a military strike over the weekend could be what underpins risk appetites today. The dollar’s gains in the pre-weekend are being cut back a little.
The Canadian dollar and the Norwegian krone are heading the greenback’s decline against major currencies. But an exception is the yen, which is down by roughly 0.2%.
The fourth missile test by North Korea in 2022 took place. What’s more, the region saw the growth of most equity markets, except for South Korea and Hong Kong. The Russian ruble and South Korean won are the main losers amongst emerging market peers. More sturdy currencies include the Thai baht and the central European currencies.
Japan Sets Record Budget for Omicron Defence
The government in Japan put forward a record-breaking ¥107.6 trillion general-account budget on December 24th. This budget is about ¥1 trillion more than the initial budget for this fiscal year. This is the tenth consecutive record-breaking year and the fourth year running that the initial budget has been over ¥100 trillion.
Nearly a third of expenses are the result of Social Security. As such, this was enlarged by approximately ¥439.3 billion at the start of the prior fiscal year to reach ¥36.3 trillion. For the eighth year running, defence expenditures reached a record high, rising by 1.0% to reach ¥5.4 trillion.
This was primarily the result of higher R&D costs, such as the development of an advanced new fighter plane.