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The yen left its major counterparts eating dust last week. Can it sustain its bullish momentum this week? Here are potential catalysts for the low-yielding currency.

Overall risk sentiment

As you can see below, the yen’s strong performance mostly came from concerns over the U.S. economy, lower dollar demand, and lower global bond yields.

With China’s markets out on a week-long holiday and other major economies not scheduled to print a lot of top-tier reports themselves, you can bet that yen traders will take cues from global risk sentiment again. Keep your eyes peeled for any news that might affect bond yields, aight?

Any word from the BOJ?

The yen’s bullish momentum probably wouldn’t have lasted as long if not for Finance Minister Taro Aso and other BOJ officials hinting that they’re chill about the yen’s current levels. In fact, Aso even went on to say that the yen’s “current situation doesn’t warrant special intervention.”

Meanwhile, Kuroda’s renomination for a second term gave a fresh infusion of bullish momentum as it hinted that Prime Minister Shinzo Abe is still confident that Kuroda’s leadership will help pull Japan’s inflation from its rock bottom levels.

Last Week’s Price Review

The yen apparently had a repeat performance of last week’s price action since the yen is currently on track to finishing as this week’s champion yet again (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 while yen pairs tracked bonds yields for the most part, the yen didn’t weaken too much when bond yields surged in the wake of the better-than-expected U.S CPI report, which is rather odd.

Some market analysts tried to explain the yen’s resilience as being due to weaker demand for the Greenback, with worries related to the U.S. deficit being cited, as well as the yen being in more demand as a funding currency (at the Greenback’s expense).

In any case, the yen’s early gains when bond yields fell and the yen’s resilience on Wednesday are the main reasons why the yen finished higher against its peers for yet another week.

Interestingly enough, the yen also appeared to respond positively when Japanese Finance Minister Taro Aso said the following on Thursday:

“From our perspective, the current situation doesn’t warrant special intervention. The yen isn’t rising or falling abruptly.”

Moreover, the yen also responded positively when Haruhiko Kuroda was renominated as the BOJ Shogun earlier today.