More Favorable Times For Japanese Yen. By Gary Stride
Since the brief spike to just under Y93.00 in early June, dollar/yen seems to have spent every day pivoting around Y91.50.
No matter what is happening to the dollar or the euro, the yen steadfastly refused to leave its Y91-Y92 comfort zone.
However late last week, with very little fuss, the spot dropped 100 sen.
Not a big move granted, but link it with the fact that at the time this slippage occurred the usual drivers of the yen--risk and equities--were pointing to yen weakness, not strength.
So why the change of heart?
Well, the other big driver of yen positioning--U.S. yields--started to fall after last Thursday's benign U.S. inflation print.
The closely watched 10-year Treasury yield fell to a one-week low and almost in sync the dollar started to fall and the yen to rise.
Another plus over recent days is that the macro-fundamental picture for Japan has improved, notes Brown Brothers Harriman.
Domestic data has been more upbeat and this has prompted the government to raise its economic assessment for the first time in three months.
The bank says with the spot now trading below its 200-Day Moving Average at Y90.90, the technical conditions and current market sentiment could see a decline to Y90, or even Y89.00, in the days ahead.
And now there's a third reason why the yen may have yet more travel in it.
On Saturday, the Peoples' Bank of China announced that it would de-peg the yuan from the dollar.
The yen, which is often seen as a proxy trade for the yuan, spiked to a near one-month high against the dollar in Asia early Monday, although it did give up much of those gains on disappointment that the dollar/yuan rate did not fix lower Monday.
Some analysts believe there will likely be more mileage in this story for the yen.
UBS says currencies of those economies with the largest share of exports to China--such as Australia, Japan, Taiwan, Korea, Brazil and Indonesia--will rally at the start of this week.
Capital Economics Chief International Economist Julian Jessop says the dollar is likely to fall against the euro and the yen as China's move will have a positive effect on global sentiment and reduce safe-haven demand for the U.S. currency.
However, Jessop doesn't expect these initial responses to last long as any appreciation of the yuan is likely to be small and as such not a 'game changer' and although there will be a lot of dramatic headlines, really very little has changed.
Around 0700 GMT, the dollar traded at Y90.75, unchanged from late U.S. levels on Friday but up from its low of Y89.95 seen in early Asia trade Monday.
The euro fetched $1.2452, up from $1.2370, while the pound was worth $1.4910, up from $1.4812 seen late Friday.
No matter what is happening to the dollar or the euro, the yen steadfastly refused to leave its Y91-Y92 comfort zone.
However late last week, with very little fuss, the spot dropped 100 sen.
Not a big move granted, but link it with the fact that at the time this slippage occurred the usual drivers of the yen--risk and equities--were pointing to yen weakness, not strength.
So why the change of heart?
Well, the other big driver of yen positioning--U.S. yields--started to fall after last Thursday's benign U.S. inflation print.
The closely watched 10-year Treasury yield fell to a one-week low and almost in sync the dollar started to fall and the yen to rise.
Another plus over recent days is that the macro-fundamental picture for Japan has improved, notes Brown Brothers Harriman.
Domestic data has been more upbeat and this has prompted the government to raise its economic assessment for the first time in three months.
The bank says with the spot now trading below its 200-Day Moving Average at Y90.90, the technical conditions and current market sentiment could see a decline to Y90, or even Y89.00, in the days ahead.
And now there's a third reason why the yen may have yet more travel in it.
On Saturday, the Peoples' Bank of China announced that it would de-peg the yuan from the dollar.
The yen, which is often seen as a proxy trade for the yuan, spiked to a near one-month high against the dollar in Asia early Monday, although it did give up much of those gains on disappointment that the dollar/yuan rate did not fix lower Monday.
Some analysts believe there will likely be more mileage in this story for the yen.
UBS says currencies of those economies with the largest share of exports to China--such as Australia, Japan, Taiwan, Korea, Brazil and Indonesia--will rally at the start of this week.
Capital Economics Chief International Economist Julian Jessop says the dollar is likely to fall against the euro and the yen as China's move will have a positive effect on global sentiment and reduce safe-haven demand for the U.S. currency.
However, Jessop doesn't expect these initial responses to last long as any appreciation of the yuan is likely to be small and as such not a 'game changer' and although there will be a lot of dramatic headlines, really very little has changed.
Around 0700 GMT, the dollar traded at Y90.75, unchanged from late U.S. levels on Friday but up from its low of Y89.95 seen in early Asia trade Monday.
The euro fetched $1.2452, up from $1.2370, while the pound was worth $1.4910, up from $1.4812 seen late Friday.
- 21 June |
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