Counter currency moves, bond yields and Japanese news had the yen move net negative against the major currencies in this week’s session.
Japanese Headlines and Economic data
- Japan all industries activity down -0.2% vs. downward revision of previous to -0.6%
- Bank of Japan core CPI 0.4% vs. 0.5% previous
- Global strain stirs BOJ debate of more easing in March
- Japan’s government is undermining its own efforts to boost inflation
- Japan vows to raise sales tax as record budget passes parliament
- Weak rebound in Japan factory output leaves economy in fragile state
- Japan February retail sales rise 0.4 percent year-on-year
- Japan February jobless rate falls to 2.3 percent: government
- Housing starts in Japan rose 4.2% in February
Major Market Drivers for the Japanese Yen
The performance among Japanese pairs was mixed but net lower this week on a diverse set of influences including counter currency drivers, global risk sentiment and bond yields, and Japanese data and headlines.
Global risk sentiment started off the week with a negative lean, likely a carry over from last week’s bearish sentiment on the global economy after another weak European PMI update, and possibly on geopolitical uncertainty as the Brexit saga continues. Also, falling bond yields have been a big story lately since when they fall, it tends to be a sign that traders are worried about something, like a global recession, prompting traders to load up on bonds for safety.
This risk-off sentiment also tends to support the Japanese yen given its “safe haven” status among FX traders, but oddly enough the Japanese yen weakened along side global bond yields. This is possibly due the Japanese 10-yr bond yield falling more than most other global 10-yr bonds this week, as seen in the chart below. We can see on Monday and especially Thursday that Japanese bond yields fell relatively faster, two points in the week which happens to somewhat correlate with the intra week tops seen in the yen pairs overlay chart above.
Global risk sentiment improved later in the week as global bond yields stabilized, but the yen couldn’t seem to catch a broad bid, possibly due to traders continuing to lean negative on weak economic updates from Japan (weaker-than-expected all industries activity, inflation, and factory data) and bearish headlines (the BOJ would debate more monetary policy easing, government plans to raise sales tax), likely outweighed the positive economic updates (improving unemployment, housing starts, and retail sales data) to possibly put pressure on the Japanese yen as well.
The yen only managed to pull out a couple of winners this week due to counter currency events, namely the fall in both the British pound (another failure to pass Brexit deal) and the New Zealand dollar (falling after the RBNZ switches to a dovish tone and leans towards rate cuts).