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Trade war fears and bond yield price action pushed the yen to one of the top spots last week. Will this week’s events extend its bullish run?

BOJ’s summary of opinions (May 9, 11:50 pm GMT)

Two weeks ago the Bank of Japan (BOJ) maintained its monetary policies as analysts had expected.

What they didn’t expect was that Governor Kuroda and his team would scrap the deadline for their meeting their 2.0% inflation target. Specifically, they removed this part from their previous release:

“Comparing the current projections with the previous ones, the projected rates of increase in the CPI are more or less unchanged. The timing of the year-on-year rate of change in the CPI reaching around 2 percent will likely be around fiscal 2019.

BOJ members also downgraded some of their projections in their latest quarterly outlook. While they upgraded growth forecasts for FY 2018, they also downgraded their 2018 and 2019 inflation estimates.

Luckily for the yen, market players mostly ignored the BOJ’s bombshells. Will the Summary of Opinions release inspire more reaction from yen traders? Stay tuned!

Overall risk sentiment

As mentioned below, easing geopolitical risks in the Korean region helped risk sentiment and pushed the yen lower early in the week.

Bond yields (and the yen) began rising again as U.S. officials met with Chinese representatives to talk trade. Though there are major events scheduled this week, you might want to keep close tabs on overall risk sentiment for clues on how the lower-yielding yen would trade.

Last Week’s Price Review

The yen is the second top-performing currency of the week (as of 8 am GMT), second only to the mighty Greenback. The yen only barely lost out to the Greenback, though, and the trading day is far from over, so the yen still has a chance to claim the top spot.

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. Also as usual, risk sentiment got in the way.

The yen’s price action on Monday, for instance, was rather messy likely because of the risk-on vibes at the time, which dampened demand for the yen and prevented the yen from taking advantage of the slide in bond yields during the later half of the trading day.

Risk sentiment is also the likely culprit for the yen’s mixed performance on Tuesday, especially during the U.S. session.

As mentioned in Tuesday’s London session recap, trade war fears got revived at the time. And that likely spurred safe-haven demand for the yen since the yen began to gain ground on most pairs (except USD/JPY and CAD/JPY) even as bond yields continued to rise.

Anyhow, all became right with the world again come Wednesday since the yen pairs began to track bond yields more closely.