A Deep Dive
The Japanese yen experienced a tumultuous week, hitting its weakest level since April 1990 on Monday. This sharp decline was driven by a combination of factors, including a holiday in Japan, attempts by traders to test key levels, and stop-loss orders being triggered in a nervous market.
The yen's descent began with a sudden move that saw the dollar rise as high as 160.245 yen. This move was attributed to "stops" being taken out at the key 160 level, forcing those with long yen holdings to square their positions, further exacerbating the yen's slide.
Despite the yen's weakness, the euro and sterling remained relatively unaffected, staying near the bottom of their recent ranges. However, markets remain on high alert for any potential intervention by Japanese authorities to curb the yen's decline.
The yen's volatility was further amplified by the Bank of Japan's decision to keep policy settings unchanged. This decision, coupled with the lack of clues on reducing JGB purchases, left investors disappointed and contributed to the yen's weakness.
Meanwhile, the Federal Reserve's upcoming policy review is the primary focus for markets this week. Investors are anticipating a delay in rate cuts, given recent inflation data and hawkish statements from Fed officials. This could potentially limit further yen depreciation, as the yield spread between U.S. Treasuries and JGBs may not widen as much as previously expected.
Overall, the yen's recent performance highlights the ongoing uncertainty in global markets. While the Fed's policy stance remains a key driver, the Bank of Japan's actions and potential intervention will also play a crucial role in determining the yen's future trajectory.