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Treasury Yields and Trade War Fears Driving USD-JPY Price Action

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Yen depreciated against the US dollar

The Japanese yen (JYN) returned to weakness against the US dollar as political uncertainty in the euro area fell at the end of the week that ended on June 1. The Japanese yen (FXY) closed the week at 109.55, falling 0.15% against the US dollar (UUP) for the week that ended on June 1. Many developments last week, including renewed tariffs from the US government, should have increased the demand for the yen due to its safe-haven characteristics, but investor indifference to these developments limited any gains.

The US employment report was the final blow to the yen last week. The better-than-expected jobs report pushed the yen lower against the US dollar. Japanese equity markets (EWJ) continued to fall, reflecting global risk aversion. The Nikkei 225 (JPXN) posted a weekly fall of 1.2% last week.

Speculators entered into net short territory

Speculators increased their bearish bets on the yen (YCL) for the week that ended on June 1. As per the latest Commitments of Traders report, which was released on June 1 by the Chicago Futures Trading Commission, speculators on the Japanese yen had net short positions totaling 8,306 contracts on May 29 compared to 2,767 short contracts on May 22. This was the positioning prior to the tariff announcement, but taking the market’s reaction into account, there should not be any major changes in speculator positions this week, as the market’s reaction to tariffs has been limited and largely inconsequential.

The outlook for the yen

Japan is set to report May data on housing, retail sales, and capital spending this week, but none of these reports are likely to have any major impact on the yen. In the absence of any geopolitical risk events, the Japanese yen is likely to be driven by demand for the US dollar and the direction of US Treasuries. Any increase in geopolitical uncertainty could be a reason for the yen to appreciate this week.

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