What Kind of Price Action Did We See?
The Japanese yen had a quiet year in terms of major events and economic data from Japan, but it was a positive year against most majors (which happens to be our contrarian pick back at the beginning of 2015). It came back against the franc after the early SNB currency peg shock, and it didn’t give up too much ground against the Greenback and Sterling, both of whom had expectations of monetary policy tightening from their respective central banks. Against the euro and the comdolls, it kicked butt harder than Mad Max on Fury Road, rising 8% or more against the group in 2015–a pretty big move in currency land.
Why Did the Yen See Some Gains?
I could make the argument that despite the prolonged weak economic readings, the bullish Bank of Japan rhetoric in May (potentially reducing bond purchases) was what drew in the buyers, but the main driver was likely the broad risk aversion sentiment that took hold mid-year after a stream of weak Chinese data and equity market collapses, as well as easing actions by the Chinese government and People’s Bank of China throughout 2015. Okay, maybe the positive turn in Japan’s economic data in June may have helped a bit.
With emerging economic data weakening and fear sentiment growing in the second half of the year, forex traders sold out of risk assets and moved back to the “safe havens” like the Japanese yen, disregarding Japanese data and monetary policy. And this was best illustrated when the Bank of Japan finally did make its only perceived easing move in 2015 a couple of weeks ago (lengthen bond maturities and adjusted asset purchases program), after which yen sellers barely made a dent before buyers took back control.
What’s Next for the Yen?
With Japanese economic data swinging back to the downside and recent risk sentiment on global growth and emerging markets creeping lower, we could see another positive year for the Japanese yen if 2015’s stories continue to hold. Of course, if all of the easy money starts to turn economies around, it could be a different tune for “safe havens” in 2016. What do you think?