Investors who took historically large positions expecting a rise in the Japanese yen were once again disappointed by the stronger-than-expected performance of the US economy and the policy direction in Japan. Investors were expecting a strong rally in the yen as a long-delayed Japanese recovery coincided with a possible US slowdown. However, the opposite happened.
Investors who took historically large positions expecting a rise in the Japanese yen were once again disappointed by the stronger-than-expected performance of the US economy and the policy direction in Japan.
Investors were surprised by the US economy’s resilient stance despite trade shocks, while policymakers put the brakes on interest rate cuts. In Japan, the new government’s preference for the central bank to keep interest rate increases limited caught investors off guard.
This situation once again demonstrated how markets repeatedly acted against expectations during the second year of the Trump administration.Holding yen is becoming costly for investors; as the yen’s nearly zero return deprives them of gains from other investment instruments. Bart Wakabayashi of State Street Tokyo stated that “the expected convergence in US and Japanese interest rates did not materialize,” indicating that investors have completely neutralized their optimistic positions in the yen over the past seven months.
The general market expectation for the yen, which fell to its lowest level in nine months against the dollar this week at 155.05, is for a sideways trend or further weakening.
According to Vaibhav Loomba of Klay Group, “This market is a lack of persuasion market.”
