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How Is the Japanese Yen Gaining Strength?

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Feb. 9 2016, Updated 10:52 p.m. ET

Japanese yen strengthens by more than 1%

The US dollar to Japanese yen currency pair, which is inversely related to the Japanese yen, had a remarkable week beginning Monday, February 1, 2016. It fell from close to 121 to a low of 115. The fall continued at the start of the week on February 8, 2016, after domestic data also aided in the bounce back of the yen and the Bank of Japan’s monetary policy.

The movement in the yen has been in line with our earlier currency outlook article, which suggested that the fundamentals are pointing to a stronger yen with only the Bank of Japan in the way. For further information on the currency outlook, check out our earlier post, Japanese Yen Rose Slightly Due to Safe-Haven Demand.

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Current account comes out on a decent note

The Japanese current account for January was published by the Ministry of Finance on February 8, 2016. The current account rose to 1.62 trillion yen, which was above the estimates of 1.59 trillion yen and the previous month’s 1.4 trillion yen. Among other data, the Japanese economy watcher survey’s current outlook came in at 46.6, which was below forecasts. But the outlook for the economy came in above expectations at 49.5.

Impact on the market

The iShares MSCI Japan ETF (EWJ) was trading 0.18% lower at the close of trade on February 8, 2016. On the other hand, the WisdomTree Japan Hedged Equity ETF (DXJ) ended negative by 2.6%.

Japanese ADRs (American depositary receipts) on US exchanges were trading on a negative note. Leisure goods maker Sony (SNE) fell by 2.4% on February 8, 2016. In the banking arena, Mitsubishi UFJ Financial (MTU) fell by 1.1%, while Sumitomo Mitsui Financial Group (SMFG) fell by 2.6%.

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