Why the Japanese Yen Has Outperformed Other Currencies



Japanese yen sees a huge surge in demand

The Japanese yen (JYN), along with the US dollar, saw a sharp increase in demand as risk aversion gripped global markets. The yen is considered a safe haven in times of market sell-offs because of its current account surplus. In the week ended February 9, the yen (FXY) closed at 108.80 against the US dollar (UUP), appreciating by 1.2%. Japanese equity markets (EWJ) fell sharply, reacting to the global market sell-off, with the Nikkei 225 (JPXN) posting a loss of 8.1% in the week ended February 9.

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Speculators decrease bearish bets on the yen

According to the Chicago Futures Trading Commission’s Commitment of Traders report, yen (YCL) speculators decreased their net short positions on the currency. As of February 6, yen speculators had 112,876 short position contracts, compared with 114,696 short contracts in the previous week. The meager decrease in speculative short positions could mean that traders are not expecting a further decrease in risk appetite. However, this data is only up until Tuesday, and there could have been a further decline in short positions in response to the equity market rout.

The week ahead for the Japanese yen

This week, fourth-quarter national account data for the Japanese economy is scheduled to be reported. Private consumption numbers, which have been lagging, will be this week’s focus. An increase in domestic consumption is one of the Japanese central bank’s targets, as this could help the economy reach its 2% inflation target. Japanese industrial production data is due to be reported on Thursday. Overall, demand for the yen depends on global risk appetite rather than domestic news. If the global market sell-off continues, we could expect further gains for the yen. Otherwise, a sharp consolidation of the recent gains could be a strong possibility.


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