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Will the yen extend its winning streak this week? Let’s take a look at the potential catalysts!

Manufacturing-related reports

If last week was about consumers, this week’s lower-tier releases focus on manufacturing.

Tomorrow at 11:50 pm GMT Japan will print its core machinery orders report for the month of August.

Analysts are expecting a 3.6% decline after seeing an 11.0% gain in July, but a better-than-expected release could push the yen just a little higher against its counterparts.

Meanwhile, the preliminary machine tool orders data will be printed on Wednesday at 6:00 am GMT.

If we see growth that’s slower than the 5.1% gain that we saw in August, then we might see the yen give up some of its gains across the board.

While the U.S. and Japan will REALLY talk bilateral agreements in mid-November, some market geeks will already be looking at Japan’s manufacturing prospects to see how vulnerable it is to possible tariffs from the U.S.

Overall risk sentiment

What’s a trading week without yen-related volatility?

This week pay close attention to see if traders continue to flock to dollar-denominated assets or if we’ll see some profit taking.

Keep close tabs on bond yields, too, as they have showed their power to dictate the low-yielding yen’s direction!

Last Week’s Price Review

The yen edged out a win against the Loonie and is currently on track to closing out the week in third place (as of 8 am GMT).

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

JPY pairs were (as usual) taking directional cues from bond yields. However, JPY pairs clearly decoupled from bond yields during Wednesday’s London session since bond yields were rising then but the yen tried to make its way higher on most pairs, which is rather weird since risk-taking was the name of the game back then.

JPY pairs were forced back down when U.S. bond yields surged during Wednesday’s U.S. session. However, the surge in U.S. bond yields also caused risk aversion to return since higher U.S. yields signal higher inflation expectations, which mean more rate hikes and tighter credit conditions.

And that likely allowed the yen to fight back. Also, the BOJ refrained from intervening, even though the surge in U.S. bond yields also caused the yields of 10-year Japanese government bonds (JGB) to go above 0%.

There was even a Reuters report on Thursday, which cited an unnamed source as saying that:

“There’s room to allow super-long yields to rise more, as long as 10-year rates stay around the BOJ’s target.”

The report even went on to claim that the above statement was “echoed by two other sources.”

Anyhow, bond yields eventually dipped on Thursday and risk aversion plagued the markets, so the yen continued to take ground from its peers.

Bond yields began to tilt upward again on Friday but risk aversion persisted and the BOJ refrained from pushing the yield of 10-year JGBs yet again, so the yen continued to find buyers on most pairs.