Why the Japanese Yen Failed to Capitalize on the US Dollar’s Slide
Japanese yen failed to gain last week
The Japanese yen (JYN) depreciated against the US dollar for the first time in four weeks. Despite a spike in uncertainty surrounding US tax reform and news about Russian involvement in US elections, demand for the safe-haven yen has waned. This trend could be an indication that investors are not worried about the outcome of either uncertainty. For the week ending December 1, the Japanese yen (FXY) closed at 112.11 against the US dollar (UUP), depreciating by 0.50%.
Japanese equity markets (EWJ) stayed in positive territory last week with the Nikkei 225 (JPXN) posting a weekly gain of 1.2% for the week ending December 1. This was the 11th positive weekly close for the index in the last 12 weeks.
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Speculators decreased bearish bets on the yen
The Japanese yen (YCL) speculators decreased their net short positions on the yen as per the latest commitment of traders report released on December 1 by the Chicago Futures Trading Commission (or CFTC). As of Tuesday, November 28, speculators on the Japanese yen had a net short position of 110,640 contracts as compared to 122,602 short contracts in the previous week. With no major geopolitical risks now and the commitment of the Bank of Japan to keep the ultra-loose monetary policy in place, we can expect speculators to remain bearish on the yen.
Week ahead for the Japanese yen
At a conference on December 4, Bank of Japan Governor Haruhiko Kuroda confirmed that the central bank has no plans to change its stimulus program and could increase the stimulus if required. This leaves Japan in the accommodative central bank camp, while other developed economies’ central banks are planning or have initiated measures to withdraw stimulus. The key drivers for the yen would be the US dollar demand, as no other major economic data is scheduled to be reported from Japan this week.