Why Is The Japanese Yen Depreciating?
The Japanese Yen has plunged versus its currency major counterparts over the past two months. This has seen a major shift in sentiment towards the yen and traders are now heavily net short on the currency when referencing the commitment of traders data from the Commodity Futures Trading Commission. This data shows that the large speculator group, which is made up of hedge funds, banks and similar large institutions who trade currency futures for speculative purposes, have gone from being net long 59,657 contracts on the 10th January to a net short position of -42,380 contracts last week. There is no central exchange in the forex market but the COT data is seen as a reasonable representation of the broad market sentiment. Anyone interested in learning about this area can read this COT Report article.
This change in trend for the Japanese yen has been one of the biggest developments in the forex market for quite some time. The JPY is one of the most heavily traded currencies in the FX market with only the U.S. dollar and European common currency seeing higher volume. The Japanese government has an ongoing concern that any appreciation in the JPY value could damage export growth as it makes Japanese goods less competitive; a weaker yen is great news for Japanese exporters since it makes their products more affordable for foreign consumers. For this reason the BOJ is known to have previously intervened in the currency markets in an attempt to cap the value of the yen. The reality is that recent attempts to intervene in the currency markets have seen little success for the BOJ. The typical reaction to this kind of intervention was a highly volatile move as the central bank intervened followed by a resumption of the strong yen theme.Continued on the next page