Talking Points:
• Yen crosses have soared over the past two-and-a-half years in part owing to a persistent risk appetite
• As strong as the pairs have been, their yield has severely trailed exchange rate performance
• Much of the Yen pairs' progress is founded through the BoJ, what happens should their support waver?
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What is driving the Yen higher? Is it robust risk appetite leveraging a tepid carry trade, a speculative effort to take advantage of a central bank driving its currency down or both? We have seen speculative appetite outrun its fundamental backdrop across multiple asset types backed by a sense of complacency and need to compensate for thin returns. As with the S&P 500, a habitual climb for the Yen crosses posses an attractive target. Yet, another similarity can be drawn to central bank influence. The Fed's presence has emboldened speculators to chase a mature trend while the BoJ's past stimulus exploits have fed a speculative drive beyond what actual returns could afford. What happens if the Japanese central bank indicates limitations on its support of the market? Could risk keep the fundamental gap padded? We discuss the stimulus influence over USDJPY and the Yen crosses in today's strategy video.
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