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The yen started the week with early gains, but a late shift in global risk sentiment had yen sellers coming in to close the yen mostly down versus last week’s close.

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

Major Market Drivers for the Japanese Yen

As with almost every other week, Japanese yen price action was mostly dictated by bond yields, global risk sentiment, and opposing currency price action. Yes, we did have a few economic events from Japan, but they were pretty much all duds in terms of bringing in volatility  or uniform direction to yen pairs.

Even the Bank of Japan’s latest monetary policy statement didn’t see much reaction on the initial release (which is not unusual), despite another cut in their inflation outlook to 0.9 per cent from 1.4 per cent for the fiscal year ending March next year, thus reducing the odds of normalizing their ultra loose monetary policies to stimulate the economy.

It was more likely that global risk sentiment and bond yields were the drivers of somewhat uniform price action among yen pairs, first yen strength at the beginning of the week after we saw negative Chinese GDP data (slowest growth pace since 1990), followed by weak data from Europe, and possibly on news that US cancels trade planning meeting with China prompting traders to retreat to “safe haven” assets like bonds and lower yielding currencies.

From Tuesday on, price action was more mixed as the Kiwi and Sterling found strength in their currency specific themes while the Aussie fell after surprise news on mortgage rates from one of their four major banks.

Sentiment shifted from Thursday going into Friday to bring in uniform yen movements once again,  likely on positive U.S. tech sector earnings, signs of the U.S. government shutdown to end (which did take place Friday afternoon), and the possibility of the Fed coming close to ending its balance sheet reduction program. This combination sparked a big run in risk-on buying to close out the week, putting pressure on the Japanese yen down against all of the majors (except the U.S. dollar) to take its place as the second worst performer on the week.

Japanese Headlines and Economic data