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Last week the yen clobbered its counterparts when the BOJ made teeny tiny changes to its bond purchases. Which themes can move the low-yielding currency this week?

Japan’s mid-tier data reports

I’m not seeing any top-tier Japanese data on the docket this week. However, we will see the core machinery orders report in early Asian session on Wednesday and the revised industrial production numbers on early Thursday.

If you’re into day trading yen pairs, you should know that both monthly (-1.2% vs. 5.0% previous) and annualized (0.5% vs. 2.3%) core machinery order reports are expected to come in weaker this week, while industrial production is estimated to keep its initial 0.6% reading.

Extended yen gains?

As mentioned below, the yen’s price action last week centered around speculations that the Bank of Japan (BOJ) is ready to ease the pedal from the metal and reduce its regular JGB purchases. This is likely why the yen decoupled from global bond yield trends in the last couple of days.

Will the yen extend its gains this week? Or will traders go back to paying attention to bond yields for the yen’s direction?


Last Week’s Price Review

The yen is this week’s king of pips (or queen if you like) since it easily trounced its peers, with the exception of the Kiwi, which put up a pretty good fight.

Overlay of Inverted JPY Pairs & US10Y Bond Yield (Black Line): 1-Hour Forex Chart
Overlay of Inverted JPY Pairs & US10Y Bond Yield (Black Line): 1-Hour Forex Chart

Do my eyes deceive me? Are yen pairs finally decoupling from bond yields? Well, I suppose I shouldn’t be too surprised. After all, I mentioned in last week’s recap that the yen was apparently paying attention to BOJ Shogun Kuroda’s rhetoric at the time.

Anyhow, the yen’s price action was pretty straightforward since it ignored bond yields and stomped and crushed its rivals like insects from Tuesday to Wednesday before finally taking a break and having a more mixed performance starting on Thursday, which is when the Kiwi launched its counter-attack and regained some of its losses against the yen.

As to what caused the yen to decouple from bond yields, pretty much everyone is pointing to the BOJ’s tapered purchases of long-dated bonds on Tuesday since this was seen as an early sign of possible tightening in the BOJ’s super loose monetary policy.

There were no fresh catalysts on Wednesday and risk appetite was the dominant sentiment to boot, but the yen just steamrolled its peers. And so market analysts pointed once more to growing speculation that the BOJ may tighten monetary policy.

After that, the yen’s price action became more mixed, likely because the BOJ maintained its bond-buying amounts during the next round of bond purchases on Thursday. The yen also showed signs of taking some directional cues from bond yields again at this time.