Why the Japanese Yen Could Depreciate Further



Continued weakness in the Japanese yen

The Japanese yen (JYN) continued its negative trend in the holiday-shortened week ended July 7, 2017. The USD-JPY (UUP) (FXY) currency pair closed the week at 114.00, a fall of 1.5% compared to the previous week.

Japan is the only developed economy whose central bank is expected to continue with its accommodative monetary policy as the Japanese economy struggles to return to normalcy. Inflation in the country remains stubbornly low despite the extraordinary measures taken by the Bank of Japan. Japanese equity markets (EWJ) closed on a negative note last week, with the Nikkei 225 (JPXN) posting a fall of 0.52%.

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Speculators continue to remain bearish on the yen

The Japanese yen is the only currency in which speculative bets against the US dollar have fallen compared to the previous week. According to the latest Commitment of Traders (or COT) report, currency market speculators added 14,000 short positions last week. The Japanese yen’s net positions fell for the second week in a row, and they’re now at their most bearish level since January 2017.

Week ahead for the yen

Japan’s economic calendar has May machine order data scheduled for release on July 10, 2017. May machine orders are expected to rise 1.0%, recovering from their 3.1% fall in April. The Japanese current account surplus is expected to fall to 1.6 trillion yen, compared to 2.0 trillion yen in April.

June’s PPI (producer price index) and May’s tertiary index are also expected to fall, adding to the negative sentiment surrounding the yen.


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