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Shifts in global risk sentiment clashed with individual FX catalysts to mix up the Japanese yen’s performance against the other major currencies.

Overlay of Inverted JPY Pairs: 1-Hour Forex Chart
Overlay of Inverted JPY Pairs: 1-Hour Forex Chart

Major Market Drivers for the Japanese Yen

As expected, Japan’s basket of low tier reports were not a contributor to yen volatility this week. It was once again all about global risk sentiment and counter currency drivers that had yen pairs moving in what was mostly a quiet week of action.

Global risk sentiment kicked off on a negative tilt at the beginning of the week on a mix of weak industrial earnings from China that likely dampened global economic sentiment, combined with negative stories potentially hurting U.S.-China trade talks including China’s accusation of the U.S. of trade policy breach to the WTO and criminal charges against China’s Huawei Technologies by the U.S. Weak earnings reports from U.S. companies due to China issues may have also been a negative sentiment driver on the Monday session as well. This is the likely reason we saw the yen’s performance against the high-yielders outperform its performance against the other safe havens going into the Wednesday trading session.

Global risk sentiment seems to have shifted during the Wednesday trading session, possibly on reassurances from U.S. officials of ‘significant progress’ with China trade talks, positive earnings from U.S. industrial companies, and/or net positive economic reads from around the globe including positive German consumer climate, U.K. credit and money supply data, or a positive ADP non-farm employment data report.

Whatever the driver may have been to get it started, it’s clear that risk-on sentiment was kicked into high gear after the dovish FOMC monetary policy statement. The Fed staying patient and waiting for further data basically gave the signal to traders that additional tightening does not seem to be in the cards for now.

From this point on, the yen’s performance against the high-yielders/comdolls continued to deteriorate further into the weekend.  And it’s likely the round of positive U.S. economic data points on Friday, including a ‘scorching’ U.S. jobs number and solid ISM manufacturing survey report (arguably putting to bed arguments of a recession coming in the U.S.) was the final driver that had traders in risk-on mode once again.  This put the yen under pressure against the other safe haven currencies (USD and CHF) at the end of the European trading session, and made it the second biggest loser for the week.

Japanese Headlines and Economic data