Yen Rises

Yen Rises as Risk Appetite Falls

On Friday we wrote, “Yen has been the key beneficiary of the this move to risk aversion gaining more than 200 points since yesterday. However, the unit lost some momentum in late Asia trade as USDJPY once again traded above 119.00 figure. Despite the power of the carry trade unwind, the yen is unable to gather even a modicum of support from the fundamentals. Overnight Japanese data was horrid with Retail Trade slipping to -0.4% and CPI continuing to contract. Japanese retail traders have been one of the staunchest sellers of their own currency and they stepped in to buy the dips in USDJPY tonight helping to stabilize the fall.”

Next week the tug of war should persist as the forces of risk aversion will continue to cover their yen shorts and the still potent demand of carry traders who see nothing on the economic horizon to expedite the BOJ glacial pace of monetary tightening will try to buy every dip in the yen crosses . Indeed after last weeks lackluster data chances of an August rate hike have decreased. The market will now focus on the Overall Household spending figures which will be critical to determining the health of the consumer. Expectations are for 0.7% rise. If the number prints in line, the yen may get a boost ob speculation that an August rate may yet take place, but a miss would almost certainly take that scenario off the table. None of this however will assure further yen weakness if the turmoil in global equity markets continues. In a battle between carry trades and risk aversion, the latter has the upper hand. – BS