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The yen ended last week mixed against its counterparts. Will this week’s catalysts cause one-directional movement for the safe haven?

Trade balance (Dec 18, 11:50 pm GMT)

Japan posted a much wider than expected trade deficit after a huge jump in imports overshadowed exports in October.

This week analysts expect to see the deficit widen further from 0.30T JPY to 0.31T JPY in November. With traders jittery over global trade lately, you can bet pips that Japan’s trade numbers will be closely watched by investors around the world.

Japan’s trade balance doesn’t usually affect the yen’s price action for long, but the lack of other top-tier reports scheduled in the same trading session could lead to increased volatility for the yen crosses during the release.

BOJ’s monetary policy decision (Dec 20, Asian session)

In last month’s policy decision, the Bank of Japan (BOJ) underscored the importance of keeping its policies accommodative by DOWNGRADING its growth estimates for 2018 and inflation forecasts for 2018 through 2020.

This is likely why market players don’t see any policy changes this week. See, between the U.S.-China trade war, expectations of slowdown in global demand, and the scheduled sales tax hike in Japan, it’s likely that BOJ members will wait a bit before they start to normalize their policies.

BOJ Governor Kuroda is scheduled to have a presser a few hours after the statement release. Make sure y’all stick around in case we see hints of what the central bank is planning next year!

Overall risk sentiment

What’s a trading week without trading the yen as a safe haven?

Aside from major policy decisions by the BOJ, BOE, and the Fed, updates on Brexit, the U.S.-China trade negotiations, and Uncle Sam’s top-tier reports can also cause a blip or two for the yen pairs.

Good luck and good trading, fellas!

Last Week’s Price Review

Looks like the yen won’t be able to add to its gains from last week since the yen is mixed but a net loser for the week (as of 9 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

As usual, JPY pairs were taking directional cues from bond yields. And since bond yields are higher for the week, the yen found itself on the receiving end of a beat-down. And market analysts say that bond yields are higher this week because of easing Brexit-related tensions and trade-related optimism.

Speaking of trade related optimism, risk-taking was the prevalent sentiment this week, thanks mainly to signs of progress in trade talks between the U.S. and China since it was revealed during Tuesday’s Asian session that Chinese Vice Premier Liu He is negotiating with U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer.

There was also a Bloomberg report during Tuesday’s London session, which claimed that China is supposedly planning to play nice with the U.S. by slashing tariffs on imported U.S. cars.

Moreover, Trump was interviewed by Reuters just before Wednesday’s Asian session rolled around and Trump showed optimism that a trade deal with China can be struck.

Anyhow, all those trade-related news and developments likely helped in weakening the safe-haven yen. Trump’s Reuters interview, in particular, gave the yen a noticeable bearish kick.

However, it’s worth pointing out that the yen did decouple from bond yields on Wednesday since bond yields steadily rose but the yen only grudgingly took a step back. And thanks to that decoupling, the yen’s losses are as not as severe as they would have been had JPY pairs tracked bond yields closely.

As to what caused that decoupling, well, there were a couple of major risk events on Wednesday, namely the leadership challenge against Theresa May and budget talks between the E.U. and Italy. And those may have sent some safe-haven flows towards the yen, shielding the yen from the rise in global bond yields and prevalence of risk appetite on Wednesday.