Asia AM Digest: Yen Falls as Japan Mulls Stimulus, Rupiah May Rise

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Current Market Developments – Yen Broadly Lower

As this week’s trading session got started, the Japanese Yen gapped lower and depreciated against its major counterparts. Over the weekend, reports crossed the wires that Japan’s government is considering an initial budget proposal that would inject over 100 trillion Yen into the economy. According to the details, this is intended to be a preemptive move to avert an economic slowdown ahead of a planned increase in a consumption tax in October 2019.

A Look Ahead – Indonesia Rupiah and Philippine Peso

Keep an eye out for ASEAN bloc currencies like the Indonesia Rupiah or Philippine Peso and how they react to this development. Their respective countries have an important trading relationship with Japan. Stimulus in the latter can have knock-on effects on the former. It wouldn’t be surprising to see some appreciation in them. Up ahead, we will also get Japan’s preliminary estimate of April’s manufacturing PMI print. An upside surprise here can also have similar effects on the Rupiah or Peso.

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Prior Session Recap – USD Continued Climbing

The US Dollar was once again one of the best performing majors on Friday, rising alongside local government bond yields. This hinted at firming hawkish Fed monetary policy expectations. Following up on Thursday’s speech, Lael Brainard continued giving positive outlooks on the economy, underpinning the case for further policy tightening.

Not surprisingly, prospects of tightening credit conditions didn’t bode well for stocks as the S&P 500 headed for another consecutive day of declines. It also did not help that despite a rather solid earnings season, outlooks from companies like Apple had deteriorate. The leading losses in the S&P 500 were from the technology sector and consumer staples.

Sentiment-linked currencies like the Australian and New Zealand Dollars underperformed while the anti-risk Japanese Yen rose. Meanwhile, the Canadian Dollar also depreciated, hurt by a worse-than-expected local inflation report.

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IG Client Sentiment Index Chart of the Day: USD/JPY

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Retail trader data shows 61.3% of traders are net-long with the ratio of traders long to short at 1.59 to 1. In fact, traders have remained net-long since Dec 29 when USD/JPY traded near 113.563; price has moved 5.3% lower since then. The percentage of traders net-long is now its lowest since Apr 06 when USD/JPY traded near 106.922. The number of traders net-long is 12.7% lower than yesterday and 6.3% lower from last week, while the number of traders net-short is 9.8% higher than yesterday and 5.5% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.

Five Things Traders are Reading:

  1. EUR/USD Weekly Technical Outlook: Euro Price Coiling Up, ECB Nearing by Paul Robinson, Market Analyst
  2. FX Markets Show Speculative Complacency Has Not Been Resolved by John Kicklighter, Chief Currency Strategist
  3. US Dollar Looks to GDP Data for Another Upward Push by Ilya Spivak, Sr. Currency Strategist
  4. Yen Weakness Remains as Japanese Inflation Settles: The BoJ is On Deckby James Stanley, Currency Strategist
  5. Australian Dollar Faces Potential Local CPI and US GDP Missby Daniel Dubrovsky, Junior Analyst

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— Written by Daniel Dubrovsky, Junior Currency Analyst for

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