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What’s Next for the Yen after Global Risks Recede?

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Apr. 30 2018, Published 3:24 p.m. ET

The Japanese yen depreciated against the US dollar

The Japanese yen (JYN) depreciated against the US dollar for a fifth consecutive week, as the US dollar continued to rally on the back of higher bond yields and the prospect of a faster rate hike pace from the US Fed. The Bank of Japan had its April meeting and left all policy rates unchanged, and the key takeaway was removing the target date to achieve the 2% inflation target. This change can be interpreted as an indication that the policy would be left accommodative and the Japanese central bank would continue with negative interest rates in the near term.

For the week ending April 27, the Japanese yen (FXY) closed at 109.05 against the US dollar (UUP), depreciating 1.28%. Japanese equity markets (EWJ), on the other hand, continued to rally, with the Nikkei 225 (JPXN) posting a weekly gain of 1.38% in the previous week.

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Speculators decreased bearish bets on the yen         

Japanese yen (YCL) speculators are moving back into short territory after staying net-long for four weeks. As per the latest “Commitment of Traders” (or COT) report, released on April 27 by the Chicago Futures Trading Commission (or CFTC), speculators on the Japanese yen had a net long position of 583 contracts, compared to 2,591 long contracts the week before.

The week ahead for the Japanese yen

The outlook for the Japanese yen now looks bleak, with the US dollar rallying and the perceived risks that drove the demand for a safe haven in the yen now declining. Japanese markets are closed for three days this week, and there are no market movers from the economy. These factors mean all the price action would be driven by demand for the US dollar, which could add further downward pressure on the yen.

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