Japanese Yen Pulls Back as Bank of Japan's Monthly Report Reflects Improved Outlook for First Time Since 2006
The Japanese yen ended on a mixed note against the majors, but staged a notable decline shortly after 1:00 ET, while the Nikkei 225 rallied 1.3 percent. Most articles written about Japanese yen trade today references the drop in the currency as a result of North Korea’s reported nuclear test, but I would argue that the intraday move has more to do with a brief rise in risk appetite. Indeed, at 1:00 ET, the Bank of Japan’s Monthly Report was released, issuing an upgraded outlook for the first time since 2006. The report said that “economic conditions have been deteriorating, but exports and production are beginning to level out.” It is clear, though, that the BOJ sees foreign demand as being the only chance for recovery in Japan, as “private demand is likely to continue weakening with corporate profits and firms' funding conditions remaining severe and a worsening employment and income situation.” While low-volume trading conditions aren’t necessary good for gauging what is truly going on in the market, the shift in FX carry trades in line with investor sentiment suggests that the Japanese yen may still hold their link with broad risk trends.
Check out the Daily Fundamentals in its entirety for a look at what happened throughout the FX markets today.