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What the Japanese Yen Is Signaling about Risk Appetite

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Yen traders are stuck in a risk-on, risk-off conundrum

The Japanese yen (FXY) closed last week at 111.34 against the US dollar, compared to 111.28 in the previous week. The yen has bounced back from the the level of 110.84 it saw last week as the risk appetite returned to the markets. The yen is considered a safe haven in times of uncertainty, so demand for it picks up when volatility (VXX) is high, and vice versa.

Japanese equity markets (EWJ) returned to positive territory last week, reflecting the risk-on sentiment across the globe. The Nikkei 225 (JPNH) closed 0.49% higher in the week, compared to a 1.5% fall the week earlier.

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Yen remains stuck in a tight range

The yen has been confined to a narrow range of 110.85–111.90 in the last two weeks. The low of 110.85 it saw during the US, FBI, and Russia uncertainty is likely to remain a key level to watch for in the next few sessions.

What lies ahead for the yen?

Japan is reporting its April unemployment data on May 30, 2017. Unemployment is expected to remain at 2.8%, according to analysts. Retail sales, industrial production, manufacturing PMI (purchasing managers’ index), and income and consumption data are also scheduled to be reported this week.

These economic data aren’t expected to have a major impact on the yen this week. Market action is likely to be focused on how the US dollar (UUP) is traded, and much depends on the US non-farm payroll data set to be released on June 2.

A negative shift due to weaker jobless claims is likely to push the yen toward further appreciation against the US dollar.

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