YEN STRENGTH SHOWS AS TARIFF TALK MOVES TOWARDS JAPAN

The Yen caught a bid in the latter portion of this week, helping USD/JPY to reverse the entirety of the gains that had posted in the pair from Monday thru Wednesday. This continues the messy price action that’s been showing in USD/JPY since the July breakout faltered. As we came into Q3, all systems appeared set to ‘go’ for bullish continuation, and the pair caught a bid through the first two-and-a-half weeks of Q3. But after resistance showed around the 113.00 area, prices pulled back and haven’t really been able to recover since.

USD/JPY EIGHT-HOUR PRICE CHART: DIMINISHING BULLISH CASE AFTER EARLIER-Q3 BREAKOUT FAILURE

Chart prepared by James Stanley

YEN DRIVERS

The big item of concern around the Yen from this week is something that cannot be found on the economic calendar, and this is also something that can keep the currency on the move for the foreseeable future. On Thursday, helping USD/JPY to reverse the entirety of the gains that had posted in the pair from Monday thru Wednesday. And while that report was initially somewhat walked back considering that it was published in an op-ed, follow-thru indication appear as though this may be something to contend with in the near-term.

Japan is vulnerable here. The ‘three arrows’ approach towards Abenomics hasn’t yet been able to reverse the decades of lagging inflation and slowing growth. Shinzo Abe came to power on the back of this strategy almost six years ago, and last month Japanese inflation came in at .9%. So despite trillions of US Dollars of QE spent towards Asset Purchase Programs over the past half-decade, Japan is still struggling to meet the BoJ’s 2% inflation target.

Up until now, the general belief was the tight trading relationship between the US and Japan may leave the island nation unscathed around the topic of US tariffs; but that appears to be changing in front of our very eyes and, as such, this is something that should not be discounted.