Overall risk appetite and end-of-quarter profit-taking sent the yen to the bottom of the forex heap last week. Will this week’s catalysts send it back up?
Overall risk sentiment
As you can see in the summary below, the yen is still taking its cues from global bond yields and risk sentiment-related headlines.
The yen-global bond yield correlation decoupled last week, however, thanks to Japanese traders taking their profits at the end of the fiscal year.
This week watch out for any excuse that could get traders back on the yen’s uptrend train. Catalysts could include updates from the Trump administration, Trump’s remarks on global trade and geopolitical issues, and market reaction from the top-tier reports due this NFP week.
Make sure you stay glued to the tube, guys!
Last Week’s Price Review
After two straight weeks of being a net winner, the yen found itself at the bottom of the forex heap this week, even though bond yields were down in the dumps.
As you can see in the overlay of inverted JPY pairs and the yield of benchmark 10-year U.S. treasuries, the yen was a loser this past week because yen pairs took directional cues from bond yields when bonds yields climbed early on, but only reluctantly recovered when bond yields fell on Tuesday, before decoupling outright come Wednesday.
The yen was reluctant to advance on Tuesday, very likely because of the risk-on vibes at the time.
As for Wednesday’s price action, bond yields were down on Wednesday because of safe-haven demand for bonds due to the selloff in global stocks, market analysts say. However, none of those safe-haven flows made their way to the yen. In fact, the yen weakened across the board, thereby decoupling from bond yields.
And the apparent catalysts for the yen’s broad-based weakness on Wednesday was the report that North Korean Boss-Man Kim Jong Un met China’s Boss-Man Xi Jinping, which very likely helped to ease geopolitical tensions and may have convinced some market players to unwind some of their safe-haven bets on the yen.