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Why the US Fed Could Drive the Japanese Yen This Week

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Japanese yen gives up minor gains

The Japanese yen (JYN) gave up some of its gains in the previous week as the US dollar appreciated on the back of the increased odds of US rate hikes in the near future. The US dollar received a boost from the FOMC meeting minutes, which indirectly had a negative impact on the Japanese yen. Improved economic indicators from Japan did little to boost the yen last week. Japanese exports were reported to have increased by 12.2% in January, and the national core inflation was reported to have improved by 0.9% in January. For the week ending February 23, the Japanese yen (FXY) closed at 106.8 against the US dollar (UUP), depreciating by 0.55%. Japanese equity markets (EWJ) posted weekly gains for the second consecutive week with the Nikkei 225 (JPXN) posting a weekly gain of 0.79% in the previous week.

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Speculators decreased bearish bets on the yen         

Japanese yen (YCL) speculators decreased their net short positions in the yen, as per the latest commitment of traders (or COT) report released on February 23 by the Chicago Futures Trading Commission. As of Tuesday, February 20, speculators on the Japanese yen had a net short position of 108,338 contracts as compared to 115,509 short contracts in the previous week.

Week ahead for the Japanese yen

This week, there is considerable economic data scheduled to be reported from Japan. Japanese industrial production, retail sales, the jobs/applicant ratio, and unemployment data for January are due to be reported this week. Apart from economic data, the developments in the US are likely to have a significant impact on the yen this week. If the US dollar rallies on the back of a hawkish testimony from the federal reserve chair, the Japanese yen could stand to see further losses this week.

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