USD/JPY Continues To Move Lower As The Dollar Takes A Breather From Its Multi-Year Peak And The Yen Gets Lifted By Safe-Haven Buying.
In Monday’s trading session, the dollar pulled back from 14-year highs as some investors took profits after it surged to the multi-year peak against a currency basket of currencies in the prior week, although it remained supported by hopes of more US interest hikes in the coming year. Meanwhile, net shorts on the Japanese yen jumped to their largest since early December 2015, based on data from the Commodity Futures Trading Commission published before the previous weekend.
With the dollar’s retreat and the firming of the yen, USD/JPY edged lower by 0.37% or $0.44 to trade at 117.49 as of writing, 12:30 GMT. The currency pair is taking a breather after soaring to a 10-1/2 month high of 118.66 yen last week.
Kumiko Ishikawa, an FX market analyst at Sony Financial Holdings, stated that: “With the Christmas and year-end holidays coming, there is no incentive for investors to take new risks, and there is some profit-taking, so it is difficult for major currency pairs to move much.”
“We'll probably continue to see some adjustments of dollar-long positions this week.” The analyst continued.
Additionally, Bank of Japan's monetary policy meeting tomorrow is forecasted to display no change in the key interest rates or QE purchases.
Dollar, Fed Rate Hike
Previously, the Federal Reserve's interest rate projections were released on Wednesday, after its widely-anticipated rate hike. These forecasts showed three more hikes in 2017, which powered the dollar's strength to last week's highs.
USD net long positions were barely changed in the week through December 13, sustaining a trend in place since the election of Donald Trump as the 45th US president on bets of more inflationary infrastructure and fiscal spending. The dollar index was last shown to be down 0.1% at 102.91, and previously climbed as high as 103.560 in the previous week.
The dollar eventually struck a bearish tone on Friday and is showing a continued bearish momentum as seen with the price action. The short-term depreciation in the greenback is likely to see a short-term correction across other currencies including gold.
Yen, BOJ Policy Meeting
Meanwhile, the Japanese central bank will begin its two-day meeting to discuss its monetary policy today, at which it is anticipated to stand pat on its 10-year government bond yield target as the weaker yen aids Japan's economic forecasts.
A weaker yen had had its impact on exports as net exports declined less than what was forecasted—something that one could expect with a weaker currency. Trade date posted early in Monday’s session revealed the effects of the weaker yen is quite apparent with the 0.4% drop in exports in the year to last month, compared to the 2.0% annual drop predicted by economists.
“The speed of the yen's weakening was likely much faster than the BOJ anticipated,” Ayako Sera, market economist at Sumitomo Mitsui Trust Bank in Tokyo, stated. “While no major changes are expected from the meeting, some tweaks to policy are possible, to adjust to the new market situation.”
The apparent safe-haven yen was boosted in Friday’s late trade in the US following a report that a Chinese Navy warship had captured an underwater drone from the US in international waters in the South China Sea. On Saturday, the Asian nation had agreed to hand back the drone, promptly resolving the situation.
According to Chinese state media and experts, China believes that the seized drone comes from the US surveillance efforts in the controversial, disputed channel; however, Beijing will not make a big issue regarding the handover.
Analysis: USD/JPY
USD/JPY formed an inside bar which could signal a near-term correction to the support at 114.00 on a bearish close, just below Thursday's trough at 117.01. Greenback returned some of the gains last late Friday after news erupted stating that China seized a US underwater drone, which had caused the decline in the USD/JPY pair become steeper.
Prior that, the forex pair had started to decline after hitting the resistance at the 118.350 level.
Although the issue now seems to have been toned down a lot, the US currency is already seemingly weaker against its Japanese peer as it has caused some safe-haven buying as it triggered some qualms between the US and China to worsen. Below 114.00 support, the further weakness could be seen coming for a move towards 109.75 - 109.50 support.