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Risk aversion and higher bond yields pushed the yen to the top of the pip hill last week. Which catalysts can push it higher or lower this week?

Governor Kuroda’s speech (May 30, 12:00 am GMT)

Near the middle of the week the Bank of Japan (BOJ) Governor will give a speech in an annual BOJ-related conference in Tokyo.

Don’t expect a lot of fireworks, however. After all, Kuroda has already shared as late as last week that the BOJ “won’t end the ultra-easy policy before inflation reaches 2 percent.

However, he also added that he and his team would telegraph their exit plans if inflation looks like it’s heading in the right direction, but he believes that conditions are not yet rife for any discussions on the timing of an exit.

Unless Kuroda shares any fireworks, it’s likely that traders will shrug off his statements in favor of stronger economic themes.

Bond yields and overall risk sentiment

As mentioned below, the yen tracked bond yields pretty accurately early last week. However, a series of (risk-averse) events all pushed the “safe haven” higher across the board.

Over the next couple of days traders will pay close attention to updates on the U.S.-China trade negotiations, the U.S.-North Korea peace talks (or any cancellations), U.S. Treasury yields, and even political skirmishes in the euro region.

If any of these themes develop in a way that spooks investors further, then we might see the yen extend its intraweek gains.

Last Week’s Price Review

The yen is currently the one currency to rule them all (as of 8 am GMT), which is a reversal of fortune since the yen was at the very bottom of the forex heap last week. The yen’s strong performance this week would also put an end to two weeks of broad-based yen weakness.

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 looking at the overlay of inverted JPY pairs and benchmark U.S. 10-year bond yield, it’s quite clear that yen pairs were uniformly taking directional cues from bond yields.

However, it’s also very likely that the yen was enjoying some safe-haven flows since bond yields fell this week, thanks to safe-haven demand for bonds.

And safe-haven demand for bonds were sparked mainly by geopolitical risks, such as the political situation in Italy, the economic situation in Turkey, the apparent breakdown in North Korea denuclearization talks, trade-related concerns due to Trump’s auto imports probe (among others).