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It was all about risk for the yen last week, as it dominated the charts when it blood spilled in Wall Street and in the forex streets. Are there any catalysts that might change its tune this week?

Lower-tier economic reports

Though it’s unlikely that these will influence the yen’s price action for long, Japan IS scheduled to print a bunch of lower-tier reports.

The annualized PPI (2.7% expected vs. 3.1% previous) will kick off the week later at 11:50 pm GMT, followed by the preliminary machine tool orders on Tuesday at 6:00 am GMT.

The preliminary quarterly GDP (0.2% expected vs. 0.6% previous) will follow on Tuesday at 11:50 pm GMT before the core machinery orders (-2.2% expected vs. 5.7% previous) is printed on Wednesday at 11:50 pm GMT.

The kicker will be the final industrial production numbers for December, which is expected to remain at 2.7% and will be released on Thursday at 4:30 am GMT.

Overall risk sentiment

Can’t write about one of the more popular safe-havens without mentioning risk sentiment! As we’ve seen last week, traders love flocking to the low-yielding yen when there’s chaos in the markets.

Aside from major themes like the U.S. government shutdown and potential skirmishes in the Winter Olympics in South Korea, keep an eye out for any catalysts that might either extend or reverse the overall risk aversion (and the yen’s gains).

Last Week’s Price Review

The yen had a reversal of fortunes this week since it was one of the main losers last week but is presently on course to finishing as this week’s champion (as of 9 am GMT).

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

And looking at the overlay of inverted JPY pairs and the yield of benchmark 10-year U.S. government bonds, yen pairs were initially taking directional cues from bond yields and even benefited a lot when bond yields slumped hard on Monday and early Tuesday.

The yen continued to track bond yields after that but decoupled during Wednesday U.S. session since bond yields rose but the yen either held steady or continued to gain strength.

Incidentally, the yen’s failure to track bond yields on Wednesday allowed the yen to preserve most of its gains and is one of the major reasons why the yen is this week’s camp.

But what caused the weird decoupling on Wednesday? Well, other than returning risk aversion, there wasn’t really anything else going on. It’s therefore probable that the yen also enjoyed some risk-off flows.