The yen was once again a net loser on the week, thanks to positive global risk sentiment and possibly on some not-so-stellar Japanese economic data.
Major Market Drivers for the Japanese Yen
Since Japanese economic data was light on top tier events and we saw no major headlines from Japan this week, price action in the Japanese yen was once again driven mainly by global risk sentiment and bond yields.
Global risk sentiment was pretty much on the upswing this week, which can arguably be attributed to several themes playing out:
- Improving U.S.-China trade relations sentiment, especially at the end of the week when the WSJ reports that U.S. officials debate lifting tariffs on China to get a trade deal, and today when news of China’s offer of a way to eliminate U.S. trade imbalance.
- After British PM Theresa May’s Brexit deal defeat on Tuesday and as well as her slim victory in the no-confidence vote on Wednesday, fears of a no-deal Brexit have waned and calls for an extension of Article 50 rises, reducing to probability of several disastrous outcomes for the U.K.
- Continued sentiment that major central banks will not tighten monetary policy as much as previously thought of in 2018 as economic data continues to weaken across the globe, including the U.S., China and Europe.
From Japan, the weak PPI and industrial production reads could be argued as a contributor towards yen weakness, but again there doesn’t appear to be any direct price action reaction to these events. If anything, though, they do support the argument that the economic outlook is weak enough to keep the expectations of the Bank of Japan to refrain from tightening policy in 2019, which is likely to prevent some support for the yen coming any time soon.
Overall, from a macro point of view, traders had little reason to seek safe haven assets this week, obvious by the apparent under performance of the yen versus the other major currencies and the rise in U.S. 10-year Treasury bond yields, and price correlation seemed pretty consistent between yen pairs for most of the week.
Japanese Headlines and Economic data
- BOJ to cut price forecasts, keep bright view of economy
- BOJ’s Kuroda calls for scrutiny of effects, costs of unconventional policy
- JGBs supported after BOJ purchase, soggy Nikkei
- More BOJ Watchers See Kuroda Locked In to Policy for 2019
- BOJ Kuroda quoted – see Sino-U.S. friction resolved this year
- Industrial production falls -1.0% m/m, rises 1.5% y/y
- M2 money growth ticks higher to 2.4% as expected
- Producer Prices decreased to 101.50 Index Points in December from 102.10 Index Points in November of 2018
- Core Consumer Prices increased to 101.40 Index Points in December from 101.30 Index Points in November of 2018
- Japan’s machinery orders nearly flat in November