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The yen was king of the pip hill last month thanks to political tensions around the globe and the risk aversion that came with the updates. Will it lose ground this week?

FOMC statement

Japan isn’t scheduled to publish top-tier reports this week, so the yen will most likely take cues from other catalysts instead.

The Fed’s event is one of the more promising ones in the lineup, as it can move USD/JPY like crazy and take the other yen crosses along with it.

Remember that a more hawkish rhetoric isn’t automatically a bad thing for the safe-haven yen, since market players also tend to worry about the stifling effect of higher FOMC rates on growth of higher-yielding assets such as equities and commodities.

Political updates

As you can see below, the yen is one of the more active currencies in times of political drama.

On this week’s episode, keep an eye out for the actions and reactions between Russia and the U.K. (and its friends); other exits from the Trump administration, and any news on Trump’s tariff plans.

Last Week’s Price Review

Like a juggernaut, the yen trampled its peers underfoot and is presently the dominant currency of the week (as of 8 am GMT), which is a solid recovery after last week’s broad-based slide.

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

As usual, yen pairs were taking directional cues mainly from bond yields, although risk sentiment also played a role.

Bond yields fell on Monday, for instance. And while the yen did show strength during the day, its gains were capped, likely because risk appetite dominated on Monday. Although it’s also worth noting that there were plenty of headlines making the rounds at the time about Japanese PM Shinzo Abe’s suspected involvement in a cronyism scandal.

The yen was forced to erase its early gains on Tuesday, however, thanks to another bout of risk-taking.

The yen’s suffering soon ended, though, due to renewed risk aversion after Trump fired Secretary of State Rex Tillerson and trade war fears got reignited.

It was then pretty much downhill for bond yields from there, since subsequent events, such as heightened political tensions between the U.K. and Russia after Theresa May ordered the expulsion of Russian diplomats, Mueller’s subpoena on Trump’s organizations, the shakeup in the White House (among others) caused safe-haven demand for bonds to ramp up, which sustained the yen’s bullish run.

It’s even highly likely that the yen was enjoying some safe-haven demand as well since the yen continued to steamroll most its peers on Thursday, even though bond yields recovered a bit.