Yen Weakness Continues to Dominate Forex Market Sentiment
The dollar to yen currency rate (USD/JPY) rallied close to the highest point seen since around April during trading late last week. This key Forex pair has extended gains previously experienced over November as expectations that the BOJ (Bank of Japan) may need to implement additional and aggressive easing measures brought further yen selling pressure to the fore.
The latest COT report data from the Commodity Futures Trading Commission revealed that market participants, trading futures contracts, have increased the net open Yen short position by over 50%.
Shinzo Abe - the opposition leader who is seen as the current favorite to become the next prime minister of Japan - said in a recent debate that monetary-easing measures needed to be considered, including foreign bonds purchases, which would have an impact on the markets. This is the latest in a series of comments expressing a desire to weaken the Japanese yen from Abe.
The greenback has gained strongly versus the yen after the dissolution of parliament in Japan and the dollar yen Forex rate has increased over 3% on the monthly basis; this marks the largest month-on-month increase since February this year. The dollar is now trading over 7% higher against the Japanese yen this year. The euro has also climbed to the highest level versus the Japanese yen since April and closed up around 3.5% on the monthly basis.
Any analysis always has to look at the alternative scenario and it remains to be seen whether the actions of Shinzo Abe - if in power after elections due to be held December 16th - would align with the markets expectations. With this in mind it is worth noting that Forex market participants will often "buy the rumor and sell the news" so there is an underlying threat of a sharp pullback in the dollar yen rate if key market players suddenly liquidate the open short yen positions.
Elevated speculation of events surrounding the so called "US fiscal cliff" have dominated Forex market sentiment over recent weeks along with the aforementioned Bank of Japanese yen easing focus and issues in the Euro-zone periphery. Recent Forex technical analysis shows the key EUR/USD rate (Euro/Dollar) closed November just under the psychological 1.30 level and the dollar index is trading just above the 80.00 level. The GBP/USD (pound/dollar) is also trading close to a key psychological level at 1.6000.