Why the Japanese Yen Finally Appreciated against the US Dollar

The Japanese yen (JYN) was the only major currency that was unable to benefit from the weakness in the US dollar (UUP), although that trend changed during the week ended January 12. During the week, the yen (FXY) closed at 111.04 against the US dollar (UUP), compared to 113.08 in the week ended January 5, appreciating by 1.8%.

The boost to the yen came from the US dollar’s weakness and the comments from Bank of Japan governor Haruhiko Kuroda, who expressed confidence about the Japanese economy. His optimistic outlook led markets to anticipate a sooner-than-expected exit from the central bank’s ultra-loose monetary policy.

Japanese equity markets (EWJ) turned lower as the Nikkei 225 (JPXN) posted a minor loss of 0.26% for the week ending January 12. A strengthening yen could limit the gains in the Japanese equity markets in the week ahead.

Speculators in the Japanese yen (YCL) remained bearish on Tuesday, January 9. According to the January 12 Commitment of Traders report, the total net speculative positions reached -125,536 compared to -121,766 in the previous week.

This data was recorded before the speech from the BOJ governor, and speculator positioning would have changed since the report. The impact of the yen’s appreciation may be seen in this week’s report due to be released on Friday, January 19.

This week, there are no major economic reports scheduled to be reported from Japan. The continued weakness of the US dollar and new speculation about the BOJ reducing its stimulus could drive the currency flow this week.