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Overall risk appetite dragged the yen near the bottom of the forex heap last week. Will the bears extend their winning streak? Or will the bulls step in this time?

Overall risk sentiment

With no major report scheduled from Japan, the yen’s price action will most likely take its cues (again) from risk sentiment.

This week pay close attention to how traders will price in the U.S.’ airstrikes in Syria and the possibility of tensions escalating in the region.

Meanwhile, trade concerns continue to limit the yen’s losses. As mentioned below, China’s Commerce Ministry has threatened that “China will not hesitate to fight back” at any trade war hostilities. If we see more tariffs proposed or implemented, then market players will likely flock back to the yen.

Last Week’s Price Review

The yen is the worst-performing currency of the week (as of 8 am GMT). This marks the third consecutive week of broad-based yen weakness. And if the yen’s ranking doesn’t improve, then this will also mark the second week of of the yen being the biggest loser of them all.

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 apparently taking directional cues from bond yields. In fact, the only clear instance when yen pairs didn’t track bond yields too closely was on Tuesday since bond yields were moving somewhat sideways (while tilting to the downside) but the yen was mostly weaker, particularly against the comdolls.

The yen’s weakness was likely due to the prevalence of risk appetite at the time, thanks largely to Chinese President Xi Jinping’s speech wherein he talked about further opening up China’s economy, which includes a plan to “significantly” lower import tariffs for products including autos, increasing imports, lowering foreign-ownership limits on manufacturing, and expanding protection to intellectual property.

Incidentally, Xi Jinping’s speech gave the comdolls a very solid boost, which is very likely why the yen was particularly vulnerable to the comdolls.

Other than that, it’s also worth noting that the yen didn’t weaken as much when bond yields skyrocketed on Thursday, due to easing geopolitical fears related to Syria, market analysts say.

There’s no clear reason for this. However, it’s possible that the yen was getting some support from lingering trade war fears since Chinese Commerce Ministry spokesman said early on Thursday that “If the United States takes any action to escalate the [trade war] situation, China will not hesitate to fight back.”