TSMC Warns FX Volatility Threatens Margins, Plans $10B Hedging Boost

Taiwan Semiconductor Manufacturing Co (TSMC) faces significant challenges from the appreciating New Taiwan dollar, with every 1 percent increase against the US dollar potentially reducing its revenue by the same margin, prompting the company to actively employ hedging strategies to manage currency risk amid robust demand driven by AI growth. In Japan, uncertainty ahead of the Upper House election on July 20 has led to decreased stock trading volumes and concerns over foreign exchange volatility, with Finance Minister Katsunobu Kato urging G20 leaders to remain vigilant against speculative currency fluctuations. The Japanese yen is under pressure due to political instability, potential fiscal stimulus, and the Bank of Japan’s cautious approach to tightening monetary policy, while the US Federal Reserve faces credibility challenges exacerbated by President Trump's interference, creating a complex environment for the USD/JPY currency pair near the critical 150 level. Market sentiment shows a strong tilt toward yen weakness, as reflected in options trading, yet risks remain for a yen rebound depending on election outcomes or shifts in Fed policy. Japanese officials, including Deputy Chief Cabinet Secretary Kazuhiko Aoki, have expressed concerns about speculative FX market moves and emphasized the importance of stable currency movements that reflect economic fundamentals, highlighting the interplay between BoJ policies, interest rates, and bond yields in shaping the yen's trajectory.