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Japanese Yen Implosion on Vaccine Breakthrough - Watch US Yields for Direction

Japanese Yen Implosion on Vaccine Breakthrough - Watch US Yields for Direction

Justin McQueen,
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Japanese Yen, JPY Price Analysis & News

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Japanese Yen Posts Largest Drop Since Q1 Crash

Yesterday’s COVID vaccine breakthrough prompted Japanese Yen selling across the board, which would have delighted Japanese Officials who had begun to fret over the recent appreciation in the exchange rate. USD/JPY had tracked risk assets and Treasury yields higher to mark the biggest 1-day % gain since the coronavirus led sell-off amid a rise from 103.20 to 105.60. Alongside this, given that markets had been long JPY, particularly against the USD, the move looks to have been exacerbated by a sizeable liquidation. Going forward, with the vaccine narrative in full swing, eyes will be on further updates from other vaccine makers such as Moderna, who Fauci has stated could produce similar results to Pfizer. As such, any further upward pressure on yields are likely to keep USD/JPY elevated.

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Nikkei Futures, USD/JPY, US 10yr Yield Chart: Hourly Time Frame

Source: Refinitiv

Technical Hurdles Ahead for USD/JPY

On the topside however, technical barriers lie ahead with the 55 and 100DMAs situated at 105.31 and 105.86 respectively. On the downside, option expiries reside at 105.05 (1.5bln) which has curbed a recovery in the Japanese Yen thus far, prompting market participants to buy the dip. I expect similar price action will be observed in high-beta currencies (AUD, NZD) against funders such as JPY given that the narrative of a possible end of year vaccine still has legs to run for now.

USD/JPY Mixed
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -1% -4% -3%
Weekly -1% 16% 8%
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Source: Refinitiv

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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