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Could the Japanese Yen Appreciate this Week?

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Mar. 28 2018, Published 8:09 a.m. ET

Japanese yen rose ~1.2% last week

The Japanese yen (JYN) extended its gains against the US dollar as the latter struggled amid tariff concerns related to the Trump administration. Apart from the US dollar weakness, risk aversion in the global financial markets added to the demand for the Japanese yen and the Swiss franc because of their safe-haven status. 

No major economic data was reported from Japan in the previous week. For the week ended March 23, the Japanese yen (FXY) closed at 104.74 against the US dollar (UUP), rising ~1.2%. 

However, Japanese equity markets (EWJ) fell along with the global markets, as the Nikkei 225 (JPXN) posted a weekly loss of ~4.9% in the previous week. The Japanese equity markets reacted negatively to the yen’s appreciation, as many Japanese companies rely on exports for their revenues.

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Speculators decreased bearish bets on the yen

Speculators decreased their net short positions on the Japanese yen (YCL) for the sixth consecutive week—and by a large amount, according to the March 23 Commitment of Traders report. 

On Tuesday, March 20, speculators on the Japanese yen had a net short position of 21,999 contracts compared to 79,539 short contracts in the previous week. If the current sell-off in the equity market continues, we can expect increased demand for the Japanese currency.

The week ahead for the Japanese yen

This week, the price action of the Japanese yen could be driven by demand for the US dollar. This demand could depend on how markets react to trade war rumbles. If the risk-off trade continues, we can expect further appreciation of the Japanese yen. 

Japan’s upcoming economic data includes private consumption data for retail sales on March 29, 2018, and household spending and industrial production data on March 30.

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