Unlike the previous week, the yen was stuck in ranges against its major counterparts last week. Will it take cues from bond yields again over the next couple of days?
Lower-tier Japanese data
While there are no top-tier reports on tap from Japan this week, we will see a bunch of lower-tier data that might cause a blip or two for the yen and its counterparts.
Japan will print its unemployment rate, household spending, retail sales, and BOJ’s core CPI tomorrow, while BOJ’s summary of opinions and Japan’s preliminary industrial production in January will be released during Wednesday’s Asian session. Consumer confidence and housing starts reports will follow on Wednesday, and the final manufacturing PMI for December will be printed on Thursday.
Gotta tell ya, unless these reports print significant hits or misses, it’s unlikely they’ll move the yen’s price action for long. After all, the BOJ has already shared its latest economic outlook and biases.
Overall dollar appetite
A busy week for the Greenback could mean a busy week for USD/JPY and overall risk sentiment.
Aside from the monster NFP week on Friday, we will see the Donald himself deliver his State of the Nation address in the middle of the week, which will be followed by the Fed’s policy statement a few hours later.
Will the major reports cause ruckus on overall risk sentiment (and therefore bond yields) this week?
Last Week’s Price Review
The yen had a more mixed performance this week after getting crushed last week. And as you can see in the overlay of inverted JPY pairs and yield of benchmark 10-year U.S. bonds, the yen didn’t really track bond yields all that much this week.
As you can also see above, price action on the yen was rather messy and even diverged on some pairs. This implies that the yen was vulnerable to opposing currency price action, especially during the later half of the week.
Moreover, if we remove USD/JPY, we can see yen pairs were mostly range-bound for the week.
The yen actually showed uniform price action initially when it weakened across the board on Monday, likely because of the prevalence of risk appetite at the time.
The yen later found buyers on Tuesday after the BOJ delivered a not-so-dovish monetary policy statement and even sounded rather upbeat on Japan’s economic outlook. And even more buyers jumped in later after BOJ Shogun Kuroda gave his presser.
Sure, Kuroda tried to downplay the BOJ’s upbeat economic outlook and even stressed that “For Japan’s economy, it’s important for the BOJ to patiently continue with powerful monetary easing.”
However, Kuroda also revealed where the BOJ’s monetary policy bias is leaning towards when he said that (emphasis mine):
“There is still some distance to 2 percent inflation, so we’re in no condition yet to debate the timing of an exit from ultra-easy monetary policy.”
So, the BOJ is looking to exit its super loose monetary policy. It just so happens that the BOJ thinks that conditions aren’t right for now.
And that hidden hawkishness in Kuroda’s message is likely why the yen continued to advance against its peers. Although it’s also highly probably that the yen was taking directional cues from bond yields as well since bond yields were sliding at the time.
After that, however, most yen pairs went into consolidation mode and became more vulnerable to opposing currency price action. No clear reason why, though, and market analysts are silent on the yen’s range-bound price action.
It is possible, however, that the market is still digesting the BOJ statement, hence the lack of uniform direction on yen pairs and the yen’s decoupling from bond yields. If so, will Japan’s economic data finally have an effect on the yen’s price action again?
Another possibility is that the yen was getting safe-haven flows because trade tensions were on the rise this week after Trump announced tariffs against imported solar panels and washing machines, and China reacted by warning that the U.S. is making the global trade environment worse for everyone.
This is a source of uncertainty and some market analysts even cited trade tensions as the reason why risk-taking was capped this week, which may have allowed the yen to decouple from bond yields.
Anyhow, it sure would be interesting to see if the yen reverts to taking directional cues from bond yield, huh?