Yen Weaker Following a Stronger Rebound in Energy and Commodity

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The yen depreciation increased sharply last week, owing to rising commodities and energy prices. The dollar was also under pressure this time, as treasury yields fell and stocks rallied late. As a result of the selloff in crosses, the euro was not far away. Commodity currencies, on the other hand, finished largely higher, headed by the Kiwi and the Australian dollar. Sterling was also strong, supported by rising expectations of an early rate hike by the Bank of England.

As previously said, US stock indexes are likely to resume their long-term upward trend. Copper, an industrial metal, could be on the verge of a breakout. Such events will keep the Yen under a lot of downward pressure while strengthening commodity currencies. However, as the rise in rates loses traction, the dollar’s upside may be limited.

Masayoshi Amamiya, deputy governor of the Bank of Japan, reiterated that the economy is “on an upward trend,” and this trend will become more pronounced as the effects of the pandemic fade. He added that price trends remain “stable” and the financial system as a whole is “stable.”

But he also admitted that consumption continues to “stagnation.” Exports and output are being affected by “supply restrictions.” The advertisement emphasizes that the central bank must be alert to the impact of disruptions in Asian supply chains.

In its October monthly economic report, the Japanese Cabinet Office lowered its export assessment from “continued moderate growth” to “slow growth”. This is the first downgrade in seven months.

Yen in the New Week

Japan announced its CPI on Wednesday and its inflation and manufacturing purchasing managers’ index on Friday. It can be said that only inflation data will drive market trends. The local market remains on the sidelines of the month-end elections and the scale of the post-election stimulus plan.

The Japanese stock market has maintained a high correlation with Wall Street this week. The fiscal stimulus announcement also provided support.

In the past week, the US dollar against the yen rose sharply to around 114.00, and it may rise further next week. The USD/JPY is a pure interest rate differential between the US and Japan. As US interest rates strengthen, Japan will always be at a low level, and the path of least resistance to the USD/JPY will continue to rise. This also drove the buying of Australian dollars, New Zealand dollars, and GBP/JPY, and also supported the rise of USD/JPY.