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How Markets Reacted to Central Banks' Mixed Messages Last Week

PART:
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Part 7
How Markets Reacted to Central Banks' Mixed Messages Last Week PART 7 OF 7

Will the Bank of Japan Affect the Yen This Week?

Sharp turnaround in the Japanese yen

The Japanese yen (JYN) had a sharp turnaround against the US dollar (USDU) last week. The dollar-yen (FXY) pair closed at 112.53, appreciating by 1.2% against the US dollar (UUP). A cautious tone from US Fed chair, Janet Yellen, led to weakness in the US dollar, and the yen stood to benefit from this development. The Japanese yen has been the only currency that was depreciating along with the dollar in recent months, as other major currencies benefitted from their central banks’ hawkishness. Economic data from Japan was mixed with the Tertiary Industry Activity Index falling 0.1% in June and industrial production falling 3.6% for May.

Japanese equity markets (EWJ) closed on a positive note in the previous week with the Nikkei 225 (JPXN) posting a weekly gain of 0.95%.

Will the Bank of Japan Affect the Yen This Week?

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Huge change in speculative positions last week

The Japanese yen speculators turned bullish on the currency last week. As per the latest Commitment of Traders report released on July 14 by the Chicago Futures Trading Commission (or CFTC), currency market speculators reduced short positions by 37,089 last week. With the US dollar’s weakness expected to continue in the next few sessions, it’s likely to see a further reduction in short positions against the yen.

Week ahead for the yen

Japanese markets will remain closed on Monday for Marine Day Holiday. Markets will likely be focused on the two-day Bank of Japan meeting that is scheduled to begin on Wednesday. There are no expectations for a policy change in this meeting, but there could be a downgrade to the inflation outlook. However, economic growth projections are likely to remain upbeat. Other data scheduled to be released include the June trade report on Wednesday and the May all-industry index on Thursday.

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