Another week, another chance to take cues from bond yields? Let’s take a look at catalysts that might affect the yen’s price action this week.
BOJ’s policy decision (June 15, Asian session)
The yen won’t get a chance to see some local action until Friday when the Bank of Japan (BOJ) shares its monetary policy decision.
Analysts aren’t expecting changes from Governor Kuroda and his friends this week, but we might see a wiggle or two from the yen pairs during the presser that’s scheduled to follow.
See, after months (years?) of denial, the BOJ has hinted that it might adjust its inflation expectations. Not only that, but it might even shift its gears and use other means of achieving its inflation goals.
Will the BOJ ease the pedal on the metal and implement other policies to help raise consumer prices? More importantly, how will the markets react to whatever changes the committee is cooking?
Overall risk sentiment
As mentioned below, the yen mostly took its cues from bond yields and risk sentiment.
This week markets will likely look at how the other G7 members react to Trump pulling the U.S. out of the communiqué. Will U.S. trading partners like the EU and Canada sic more tariffs on U.S. goods in retaliation?
And then there’s the U.S.-North Korea nuclear summit happening in Singapore this week. Word around the hood is that Trump is planning on winging the meeting instead of getting hoardes of people with a bunch of papers with him.
An unscripted meeting between two of the most headstrong leaders? What could go wrong, amirite?
Meanwhile the Fed, ECB, and BOJ are scheduled to share their monetary policy decisions this week. The Fed is widely expected to raise its interest rates; the ECB might finally hint at tapering its easy policies, and the BOJ could cry uncle and set more realistic inflation expectations. Exciting times!
Last Week’s Price Review
The yen was last week’s biggest loser and it followed up last week’s poor performance with yet another poor performance since the yen is currently the third worst-performing currency of the week (as of 8 am GMT).
Looking at the chart above, we can see that yen pairs were taking directional cues from bond yields (as usual). And since bond yields were higher this week, the yen ended up on the receiving end of a beat-down.
And bond yields climbed higher, in turn, largely because of higher expectations that the ECB may announce an end to its QE program during next week’s ECB statement, thanks to hawkish rhetoric from ECB officials.
Bond yields plunged on Thursday, though, due to safe-haven demand for bonds because of renewed trade war fears, market analysts say. And that allowed the yen to lick its wounds.
Aside from bond yields, risk sentiment also had an effect on the safe-haven yen’s price action (as usual).
This can be seen when bond yields went sideways at the start of the week but the yen showed weakness from the get-go, likely because risk-taking was the dominant sentiment on Monday.
Friday is also another example since bond yields jumped higher before resuming their slide, while yen pairs were mostly steady or even showed strength since risk aversion was the name of the game during Friday’s Asian session.