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Could There Be Respite for the Falling Yen?

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Japanese yen demand remains muted

Last week, the Japanese yen (JYN) depreciated against the US dollar for a seventh consecutive week, despite US dollar weakness. The US Iran nuclear deal pullout failed to increase demand for haven bids such as the yen. The yen (FXY) closed last week at 109.39 against the US dollar (UUP), depreciating by 0.25%. Japanese equity markets (EWJ), on the other hand, continued their dream run with a ninth positive week in ten weeks. The Nikkei 225 (JPXN) rose 1.3%. A weak yen is positive for the export-dependent Japanese economy.

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Speculators add bearish bets

Yen (YCL) speculators added bearish bets against the currency as the US dollar continued to rally and there were no signs of a recovery for the yen. According to the Commodity Futures Trading Commission’s May 11 commitment of traders report, the yen had net 5,462 short contracts on May 8, compared with 1,405 on May 1.

The outlook for the yen

The outlook for the yen remains weak despite the US dollar’s rally stalling. There are no apparent factors in the Japanese economy that could drive the yen higher soon. Volatility falling despite greater geopolitical tensions could mean further weakness for the yen. Japan’s GDP, industrial production, and inflation data is due to be reported this week—only a strong positive surprise could limit losses for the yen.

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