Japanese Yen Fundamental Forecast: Bullish
- Japanese Yen[1] gains against most FX peers as risk aversion rises
- Bank of Japan, CPI data in focus this week along with risk trends
- Safe-haven flows likely to be main driver for JPY pairs next week
The safe-haven Japanese Yen benefited against most of its peers last week as a bout of risk aversion rippled through financial markets. Risk-sensitive currencies performed poorly, with the Australian Dollar[2] losing nearly a full percentage point against JPY. The US Dollar[3] fared much better being a haven currency itself, with USD/JPY[4] nearly unchanged last week. Overall, however, the Yen has benefited over the last couple of weeks as surging Covid cases pushed growth slowdown fears.
Still, the Yen has yet to recover a substantial portion of its earlier year losses when analysts and economists were solidly optimistic about a strong economic recovery. Those upbeat economic forecasts put a hit on the safe-haven currency, displayed in the exchange rates below. The Delta strain's emergence over the summer months saw Yen strength move back into the fold, with the move being most notable in AUD/JPY[5]. That’s no surprise, given the wave of lockdowns in Australia over the summer.
Covid’s Delta wave started to strain economies in June, which saw investors move out of risk assets and into more defensive positions. Global economic data prints, including retail sales, PMIs, and labor market data, started to slip relative to expectations. The chart below illustrates this relationship through the global Citi Economic Surprise Index and AUD/JPY. Given that economic data prints relative to estimates are still trending down, meaning analysts are overestimating the global economy’s strength, AUD/JPY may be the best candidate to play the move
