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The yen was all about risk sentiment and bond yields last week. Will we see a different theme this week?

Japan’s trade balance (July 19, 12:50 am GMT)

Japan dropped into a deep trade deficit in May thanks to a 14% annualized surge in imports canceling out the 8.1% year-on-year increase in exports.

The yen bulls shrugged off the news, though, as market players were busy pricing in a bit of risk aversion and an earthquake in the Osaka prefecture.

This week traders are looking for a trade surplus of 0.15T JPY, which is an improvement from the 0.30T JPY deficit seen in May. There are other catalysts on the docket, though, so make sure you also pay attention to other headlines that might move the yen!

Overall risk sentiment

As you can see below, the yen’s price action mostly depended on risk sentiment in the markets.

With not a lot of top-tier reports from Japan, we can expect more or less the same themes moving the low-yielding currency.

Trump is meeting Putin this week, so y’all better pay attention to any aggressiveness towards other major economies as well as hints of Russia stepping up its oil production and/or partnering up with Uncle Sam on global trade matters.

Last Week’s Price Review

The yen is following up last week’s poor performance with an even poorer performance since the yen is currently this week’s biggest loser (as of 8 am GMT). And if the yen closes out the week as a loser, then  that would mark the third straight week of losses for the yen.

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 from bond yields. And since bond yields rose this week, it naturally follows that the yen had another rough time.

It’s also worth noting that risk aversion made a very strong comeback on Wednesday, but as you can see in the overlay of inverted JPY pairs above, the yen was apparently paying more attention to the rising bond yields at the time since the yen was mostly weaker on that day.

Interestingly enough, bond yields stumbled a bit on Thursday after U.S. CPI failed to impress, but as you can see in the chart, the yen steadily weakened against its peers, which implies that the yen was paying attention to risk sentiment again since risk-taking was the dominant sentiment at the time.