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The yen just clocked in positive pips for a third week in a row! Will this week’s catalysts push it up for another week?

Here are some market themes to watch:

CPI reports

Tomorrow at 5:00 am GMT the Bank of Japan (BOJ) will print its own core CPI (y/y) reading for the month of September. Will it exceed August’s 0.5% increase?

Then, on Thursday at 11:30 pm GMT we’ll find out Tokyo’s core CPI (y/y) reading for the month of October. This time, analysts are expecting to see another 1.0% growth rate for the report.

Since we won’t see other top-tier economic reports from Japan, yen traders could pay more attention to these releases than they usually do. Keep an eye out for upside or downside surprises that could cause intraday volatility!

Overall risk sentiment

As you can see below, the yen still tends to take cues from bond yields action from time to time.

This week pay attention to dollar demand and its impact on higher-yielding bets. A few FOMC members are scheduled to give speeches over the next couple of days, which could remind traders of the fact that Powell and his team are planning more rate hikes in the next couple of trading quarters.

Meanwhile, issues such as Italy’s debt, Brexit, Trump’s two cents on the Fed’s rate hike, and positioning ahead of Uncle Sam’s GDP report on Friday could also affect the demand for high and low-yielding currencies.

Last Week’s Price Review

The yen is currently mixed for the week (as of 8 am GMT). The yen is a net winner, however, so the yen is still on track for its third week of net wins.

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 mainly from bond yields. However, the yen didn’t just take its marching orders from bond yields since there were clear instances where the yen diverged from bond yields or only reluctantly tracked bond yields.

One such instance happened during Monday’s London session since risk aversion prevailed and bond yields were steady, but the yen was broadly weaker except against the Greenback.

And that’s probably because market players were wary of loading up on the yen since Japanese PM Shinzo Abe announced that plans to raise the consumption tax from 8% to 10% will take effect on October 2019 as scheduled.

Abe did try to calm the market, though. And he did that by saying that:

“[W]e, based on the lessons we learned from the previous 3 percentage point increase, will do our utmost to minimize a negative impact on the economy by implementing all sorts of policies.”

Moving on, another instance when the yen didn’t track bond yields too closely is when bond yields fell during Tuesday’s U.S. session, but the yen had a hard time attracting buyers, probably because of the risk-friendly vibes at the time.

Yet another example is Wednesday’s U.S. session since bond yields surged because of the FOMC minutes, but the yen only grudgingly gave up its gains, very likely because the minutes also caused risk aversion to flare up, which sent safe-haven flows towards the yen and cushioned the yen’s fall.

The final instance of divergence between the yen and bond yields is on Friday since bond yields initially slipped before moving back up, but the yen was already showing weakness even as bond yields fell.

And the apparent catalyst for that is China’s official announcement that it will also ask the WTO to form a dispute resolution panel to rule on the legality of the U.S. tariffs on steel and aluminum.