- Bank of Japan disappoints, Japanese Yen relatively unchanged
- USDJPY posts largest move in four weeks
The Japanese Yen rallied sharply a complete lack of market news. Why is
this significant, and what does it tell us about the next moves for
the USDJPY?
Professionals scrambled for explanations on why the USDJPY posted a
sharp 50-point tumble in the typically-quiet period after London
markets closed. And indeed some initially pointed to a so-called “fat
finger trade”—where a trader accidentally places an especially-large
order that sends markets reeling. Yet the truth was far simpler: there
was indeed a spike in USDJPY selling (Yen buying), but nothing about it
seemed accidental.
This fact is significant because large speculators were heavily short
the Japanese Yen (long USDJPY) headed into the week, and recent price
action suggests many are losing patience with those positions and
exiting their trades. Thus the USDJPY looks likely to trade towards
range lows unless we see an important shift in trader sentiment.
Focus will turn to upcoming Japanese GDP growth figures for the
second quarter, as these economic figures will be the first to include
government consumption tax hike. Consensus forecasts predict that the
economy posted its worst quarter for growth since the global financial
crisis. It is subsequently surprising to note that the Bank of Japan
shows little willingness to ease policy further. Yet any
worse-than-expected figures may force the USDJPY higher as pressure
mounts on the central bank to act.
It will likewise be important to watch volatility in broader financial
markets as the US S&P 500 drops sharply off of recent record peaks.
Whether or not equities can recoup losses may likewise dictate price
action in the USDJPY.
