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Will the Japanese Yen Continue to Depreciate against the US Dollar?

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May. 10 2018, Updated 7:32 a.m. ET

Japanese yen continues to depreciate

Last week, the Japanese yen (JYN) depreciated against the US dollar for a sixth consecutive week as the US dollar continued to rally. The US dollar rallied due to the Fed’s hawkishness and continued economic improvement. As Japanese markets were closed for three days last week, there was limited data reported from the Japanese economy. In the week ended May 4, the yen (FXY) closed at 109.1 against the US dollar (UUP), depreciating 0.06%. Japanese equity markets (EWJ) on the other hand, witnessed limited volatility as indexes were closed for three days. The Nikkei 225 (JPXN) closed the week ended May 4 with a minor change of 0.02%.

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Speculators back in bearish territory

The yen’s (YCL) dream run seems to be done for now, and yen speculators have moved into bearish territory after staying net long for a little over four weeks. According to the Commodity Futures Trading Commission’s May 1 Commitments of Traders report, yen speculators had net short positions of 1,405 contracts, compared with 583 long contracts in the week ended April 27.

What could stop the yen’s slide?

The outlook for the Japanese yen remains weak, as the US dollar’s surge looks set to continue. Although Japan’s household consumption and labor earnings data is set to be released this week, the outlook is unlikely to change, as core inflation is below 1%. We can expect further depreciation for the yen while the US dollar dominates and risks remain low. The United States’ recent pullout from the Iran nuclear deal has had limited impact on markets and is unlikely to increase safe-haven demand for the yen. Overall, the yen looks set to breach 110.0 against the US dollar.

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