The Japanese Yen is among the most traded currencies in the world. This is as a result of its low-interest rates because the Yen is used in the carry trades. Also, the Bank of Japan recently expanded the amount of yen that it buys, in an attempt to change the current market deflation to an inflation. In an actual sense, this is devaluing the Yen while at the same time boosting the countries exports and increasing prices of the imports, especially when it comes to commodities.
On 12th September 2016, the USD/JPY pair started the week with a slight decline as the Yen’s strength went above that of the US dollar to achieve its highest strength in two weeks. The pair still finds itself under pressure from the risk aversion and fears that are haunting the market as a result of global supremacy battles.
Japanese Yen has for a very long time now been seen as a safe heaven for Forex investors. Even with the current market forces, the Japanese market is still stable giving the yen a good chance compared to its partners especially the US dollar.
Looking at some of the factors at play, the most significant one is the earthquakes that hit Japan now and then. For example, the 7.1 earthquakes that were experienced last week caused the Fukushima nuclear reactors to have some power outages. Also, there was another 5.8 earthquake that hit the northern part of Japan. These earthquakes keep on elevating the demand for the Japanese yen. This is mainly due to the concerns of the Japan’s nuclear reactors. Actually, the quakes dominate most of the decisions of the traders who invest in any yen pair.
Some of the other factors/forces which saw the USDJPY pair dip include the producer’s price index that that was shied away from its anticipated level by a small margin and the machinery orders pushed higher than was anticipated by many traders.
Even with the multi-million yield from the bonds, the Bank of Japan is looking at other options to sharpen the bond yield curve. Different authorities are desperately looking for policy tools that can revive the Japanese economy that has not emerged from stagnation even with years of large stimulus projects.
While the fall in the stock markets was the primary factor behind the yen’s strength, the Japanese yen goes ahead to benefit by creating a safe haven status in reaction to Hillary Clinton, who is the hopeful Democratic party presidential candidate, possible ailment on September 11th, 2016. This satisfies status is a great boost for the Japanese yen’s stability as most financial markets have largely anticipated that Clinton could win the presidency and without sitting back to think about the effects that a Donald Trump’s win would give on the currency markets.
Also, there is the North Korea a nuclear headache that Japan is struggling to resolve. Actually if in any chance the there is an atomic test by the North Korea, the Japanese currency would receive a huge international backing.
The Japanese yen, which is a low-yielding financing currency, in such an occurrence could ascend within seconds of the news. From the recent unfolding of events in the region, North Korea on Friday the 9th declared that it had led its 5th atomic test. Even with the doubts of a successful atomic test by the North Korea, the yen still saw a rise.
The danger off-inclination appears to be boosting Fed rate rise bets as a constant flow of hawkish remarks from national bank authorities depicts an expanding feeling of agreement on the FOMC board, which sets the rates.
Brainard is expected to give the last piece of analysis before the week-long power outage period when Fed authorities stay tight-lipped just before the FOMC makes its declaration. This gives her a chance to set the tone for the anticipation of the near future. On the off chance that she echoes the tone that was lately used by her colleagues, an up movement in the anticipated rate hike may help the US Dollar and undermine downward trends.
An insight into the US economy
The key advancements in the U.S. economy may drive USD/JPY higher one week from now as Federal Reserve authorities speak about a 2016 hike in the rates, as the Bank of Japan (BoJ) stays under pressure to set out on its facilitating cycle as the central bank readies its extensive appraisal of the economy.
Notwithstanding conjectures for a 0.1% construction in U.S. Advance Retail Sales, a rise in the Consumer Price Index (CPI) joined by a bounce back in the U. of Michigan Confidence Survey may put more weight on the Federal Open Market Committee (FOMC) to increase the benchmark loan fee within the near future particularly since the Central bank stays sure about accomplishing the 2% inflation focus. All things considered, hawkish comments from Minneapolis Fed President Neel Kashkari , Fed Governor Lael Brainard and Atlanta Fed President Dennis Lockhart may support the bid of the greenback and fuel bets for higher acquiring costs as Fed Funds Futures highlight a pickup in financing cost desires, with business sector members now estimating a 30% likelihood for a September increase in the rates. Accordingly, a more noteworthy number of 2016-voting individuals may back Kansas City Fed President, Esther George, and stress for higher costs of borrowing in the very near future. However, the U.S. dollar may still be confronted with a rough price action before the policy meeting since the Chair, Janet Yellen, has given all indication of taking after a path similar to that of 2015, making the financial market traders to vigorously tilted towards a December hike of the rates.
The economic docket of Japan remains light in the coming future, as the BoJ gets into a quiet period prior to its next rate decision on September 21 when the Central Bank may at long last fall off the sidelines as Japanese authorities push for extra fiscal backing. Etsuro Honda, who is an advisor to the Prime Minister, Shinzo Abe, contended that the BoJ ought to assist on its facilitating cycle at the following meeting while the region keeps on battling with deflation. In any case, Governor Haruhiko Kuroda could keep on choosing to sit back and watch as-as the central bank officials draft their assessment of the country’s economy while it was operating under the negative-interest-rate policy (NIRP).