The Japanese yen is gaining strength against the US dollar. This situation is similar to the market movement at the beginning of August when global stock indices and the largest cryptocurrency Bitcoin (BTC) fell.).
Japanese yen rises again
The Japanese yen has risen 2.4% against the US dollar since last Thursday, ending its latest decline. This suggests that the “risk-averse” currency is again preferred. The Japanese yen is also up more than 1% against the Australian dollar and is in good standing against the euro and the pound.
The foreign exchange market is similar to the performance of the Japanese yen at the end of July and the beginning of this month. This situation led to the end of some investments using cheap credit in Japanese yen. This has also hurt Bitcoin and altcoins. The price of Bitcoin fell from $70K to $50K within eight days before rising to $60K as the USD/JPY pair increased.
Strengthening Japanese yen could shake markets again
The strength of the Japanese yen causes problems with activating stops and liquidating dangerous positions. Famous trader Simon Rey warned on X, “This situation is shaking up dangerous global assets.”
The head of Goldman Sachs’ cryptocurrency-related trading bureau, Andrei Kazantsev, recently commented on how Bitcoin and Ethereum (ETH) fall into the trap of dismantling the Japanese yen trade and the global VAR shock VAR is the maximum amount of loss that the market can withstand over a certain period. Sudden volatility forces investors to reduce their investments in risky assets.
ING Bank stated that “a 20-point decline in USD/JPY will affect the outlook for future trend and behavior. People are more likely to buy more Japanese yen at lower prices, increasing the likelihood of the yen strengthening.”
Cautious Fed Forecasts Lift Yen and Weaken Dollar
The yen rose sharply on Monday and the euro touched its highest levels this year as the dollar broadly weakened as traders braced for cautious signals from Fed meeting minutes and Fed Chairman Jerome Powell’s speech in Jackson Hole.
The minutes of the Fed’s July meeting, due on Wednesday, and Powell’s speech on Friday are likely to be the main drivers of the currency in a week that will also see inflation data from Canada and Japan and PMI readings across the US, Eurozone and UK.
Against the yen, the dollar was down about 1 percent at 146.20, after earlier falling below 146.
Analysts attributed the move to a broadly weaker dollar, coupled with the prospect of further political divergence between the US and Japan. Japan Bank Governor Kazuo Ueda is expected to debate the central bank’s decision last month to raise interest rates when he appears in parliament on Friday.
Colin Asher, chief economist at Mizuho, said: “The relative interest rate narrative certainly supports a weaker dollar.” Powell will likely repeat that the rate cuts are coming fairly soon, and more likely to say that assuming the underlying situation continues, we expect a rate hike in Japan
This shift in attitudes comes after the yen rally driven by speculation that Japan Bank (BOJ) may continue to raise interest rates. Although Japan Bank officials have since tempered these expectations, market volatility has led many investors to abandon their yen positions, a strategy in which investors borrow yen at low interest rates to invest in higher-yielding assets abroad.
Japanese markets fall on profit-taking and inflation anticipation
Japanese markets fell on profit-taking after last week’s sharp rally. The benchmark Nikkei index fell 1.77 percent to 37,388.62 points, ending a five-day winning streak as the yen strengthened on cautious expectations from the Federal Reserve. The broader Topix index settled down 1.40 percent at 2,641.14 points ahead of Japan’s inflation data due this week. Investors shrugged off data showing orders for core machinery in the Japan rose more than expected in June June compared to the previous month..
Shares of carmakers Honda, Nissan, Mitsubishi and Toyota fell 1-3 percent. Shares of retailer Seven & I Holdings rose 22.7 percent after receiving an acquisition bid..
Orders for basic machinery that excludes volatile orders for ships and electric utilities expanded 2.1 percent from the previous month, more than the expected 0.9 percent increase and reversing the May May decline of 3.2 percent..
Meanwhile, orders for basic machinery recorded a year-on-year decline of 1.7%, in contrast to the 10.8% increase in May. In the second quarter, basic machinery orders fell 0.1%. This follows the 4.4% increase seen in the previous quarter. Core orders are expected to grow 0.2% in the third quarter..
Some say interest trading could resume in the coming weeks. The reason cited is the US economy and the upcoming Federal Open Market Committee (FOMC) meeting of the interest rate decision scheduled for mid-September. .
FFF experts currently expect a 50% chance of a 50 basis point increase in September, but this probability is expected to decrease as the FOMC meeting approaches. If the Fed decides to cut 50 basis points, the market will react positively at first, but concerns about the economy and a stronger Japanese yen could lead to a wave of sell-off as the dismantling of interest trade revived.
