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Japanese yen bulls had a trying week thanks to positive leaning global risk sentiment and weak Japanese economic updates, coming in as the third worst performing major currency through Friday.

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

Japanese Headlines and Economic data

Major Market Drivers for the Japanese Yen

Based on this week’s price action in Japanese yen pairs, it was probably an even mix of influences between global risk sentiment, counter currency drivers, and weak economic data points/headlines from Japan.

First, global risk sentiment was on a positive lean pretty much for the whole week, and like a lot of the most recent weeks, it seems that optimism grew once again after the latest developments from the U.S.-China trade negotiation story. This week, Trump really got the risk-on train going with comments on the impeding March 1st deadline not a ‘magical date’, implying that it could be extended.  This likely reduces the risk of an all out trade war, so naturally, traders took this as a cue to lighten up on safe havens and move into riskier/high-yield assets, which is likely the reason we saw a broad shift lower in yen pairs on Tuesday.

Risk sentiment also saw support from the FOMC meeting minutes on Wednesday, which gave risk-on traders what they wanted as the minutes signaled an end to their balance sheet reduction, as well as a high bar for restarting rate hikes in the near-term.

Traders briefly shifted to risk-off sentiment on Thursday after weak U.S. economic data (weaker-than-expected Philly Fed Index and durable goods orders), bringing the market’s focus back to global economic data, which continued to be a net disappoint this week. Export data from Asia (Singapore, Japan, South Korea) came up very short in their latest reads, and manufacturing PMI reads from Europe and Japan show declining sentiment and pockets of contractionary conditions. The Japanese yen seems to have found some limited support in this risk-off environment, but deviated from its usual risk sentiment behavior as weak Japanese data was a part of this group of negative economic news.

But it didn’t take long for traders to get back to global risk sentiment, focusing back on the U.S.-China trade story after this week’s negotiations lead to outlines of a deal to end the trade war, and that Chinese negotiators would extend their Washington visit to continue their progress made this week.  And as another positive sign of a deal coming together, China commits to buying $1.2 trillion in U.S. goods.

Focusing on Japan, Japanese headlines and economic data were a disappointment this week  with machinery orders, trade balance, and manufacturing survey data mostly coming in weaker than expectations and previous reads. We did observe uniform weakness after the machinery orders and trade balance data, but it was tough to see any uniform movement after the all industries activity data and the core CPI data.  All combined, this likely contributed to this week’s negative lean in Japanese yen pairs, but there were no significant movements in reaction to them.

And probably the biggest mover for yen pairs from Japan was early week comments from Bank of Japan Governor Haruhiko Kuroda that the BOJ would consider more stimulus if a stronger Japanese yen would affect the economy and inflation. These comments came right around the same time as the broad yen weakness on Tuesday, so it is arguable that it was a contributor to that uniform move rather than being the main catalyst.