With no top-tier data for Japan to print, the yen danced to the tune of bond yields and risk sentiment. Will the tides change with this week’s catalysts?
Here’s a short list:
Trade balance (Oct. 17, 11:50 pm GMT)
Japan’s economic reports don’t usually affect the yen’s price action for long, but we could see a wiggle or two when the world’s third-largest economy prints its trade data.
Okay, so last month’s release was mostly shrugged off as it coincided with the BOJ’s policy statement.
But in case you’re interested, then know that Japan’s trade deficit WIDENED in August. Interestingly, its outbound shipments to the U.S. also increased for the month.
This week, analysts expect to see the deficit widen even more, from 0.19T JPY to 0.34T JPY in September. A wider-than-expected deficit might cause some weakness for Nikkei (and maybe risk sentiment), so make sure you’re watching the newswires when the report is printed!
Over the next couple of days Bank of Japan (BOJ) Governor Kuroda will have not one, but TWO opportunities to share his two cents this week.
The first one will be on a quarterly bankers’ meeting in Tokyo on Thursday during the Asian session, with the next one in a brief speech at the Japanese Trust Banks Association meeting on Friday at 6:30 am GMT.
Recall that the head honcho has been using his recent speeches to emphasize that the BOJ’s recent policy and statement changes do NOT point to tapering anytime soon. Will this week’s remarks carry the same tune?
Last Week’s Price Review
The yen will likely be a net winner again since the yen is only (barely) losing out to the Kiwi (as of 8 am GMT).
And the yen is on track for a strong finish this week, thanks to the prevalence of risk aversion, as well as the slide in bond yields.
As usual, yen pairs were taking directional cues mainly from bond yields. However, risk sentiment also helped to drive the yen’s price action.
A clear instance where risk sentiment won out is during Tuesday’s U.S. session since bond yields were sliding at the time, but the yen was feeling anemic, likely because of the risk-on vibes at the time.
Aside from bond yields and risk sentiment, it’s also probable that market players became wary of loading up too much on the yen after BOJ Member Makoto Sakurai warned that:
“[T]here’s a risk that [Japan’s] growth could fall short of such main projections depending on the extent of protectionist moves and capital outflow from emerging economies.”
“It is appropriate to take time to continue monetary easing under the current forward guidance framework, while paying heed to side-effects.”
Sakurai did say that he sees no need for further easing at this time, but the yen’s advance clearly stopped, even though risk aversion continued to plague markets and bond yields initially fell on Thursday.
Most JPY pairs even began to trend higher after Sakurai spoke and before bond yields began turning higher. And when bond yields slumped again during Thursday’s late U.S. session, yen pairs only grudgingly advanced.
And when bond yields began moving back up again, yen pairs were quick to track the rise in bonds yields. Most JPY pairs (overlay is inverted) are still in the Green as of 8 am GMT, though.