Another losing week for the Japanese yen bulls as global risk-on sentiment dominated yen pairs, along with bearish updates from the latest reads on Japan’s economy.
Japanese Headlines and Economic data
- Tokyo Feb CPI rises 1.1 pct year/year
- JGBs edge higher after BOJ retains bond-purchase amount
- Japan Industrial Output Falls 3.7% In January
- Japan Retail Sales Contract 2.3 Percent In January
- BOJ’s Suzuki: No need to ramp up stimulus now
- Japan Consumer Confidence Index (seasonally adjusted series) in Feb. 2019 was 41.5 vs. 41.9 previous
- Japan’s unemployment rate rises in January
Major Market Drivers for the Japanese Yen
Global risk sentiment and counter currency drivers were likely the main influence on price action among the yen pairs, which spent most of the week down and closed in the red against the major currencies. Global risk sentiment was on a positive lean this week as the main geopolitical and monetary policy themes traders have been following for a while see hopeful updates their their stores.
First, the U.S.-China trade situation continued to show forward progress, enough to prompt U.S. President Trump to delay his deadline for tariff increases on Chinese goods earlier in the week. This was later made official by the USTR on Wednesday, saying that the tariff increase on Chinese goods would be suspended “until further notice.”
It’s also possible that positive global vibes could be attributed to the latest Brexit development this week, which saw another decline in the possibility of the dreaded “no-deal” Brexit scenario after British PM Theresa May opens up to the idea of an extension to the March 29 Brexit deadline. This is also likely the reason why the yen performed the worst against the British pound in the JPY chart overlay above.
Finally, Federal Reserve Chair Jerome Powell testified to Congress this week on the latest semiannual monetary policy report, re-iterating that they will stay patient on interest rate hikes and that they have a plan to end the balance sheet runoff this year. With a low probability of further tightening actions on the horizon from the major central banks, traders are likely to stay in “risk-on’ mode for the time being.
With global risk sentiment in the “on” position basically all week, we saw the yen’s under performance against the higher-yielding currencies greater than the under performance against the “safe haven” currencies of the Swiss franc and U.S. dollar.
From Japan, we saw a string of lower tier economic reports that we would say added up to be net negative and worrisome for the economy, but in our observation of the chart above, uniform market reactions to these events seem to be almost non-existent in the yen pairs.
Well there was arguably one exception, that being the selling strength after the latest Japanese manufacturing PMI report during the Friday morning Asia session. It showed contraction in the manufacturing sector for the first time since August 2016, going down to 48.9 in February from 50.3 in January. Traders took yen pairs uniformly lower after the release, which continued all the way to the close of the Friday session and into the title of second worst major currency of the week!