The Japanese Yen (JPY) is under extreme pressure right now with the USD/JPY currency pair in the vicinity of the 157.00 level. This marked the third-consecutive advance for USD/JPY. This trend is further evidence of how the position of the USD has strengthened thanks to reversal of fortune from positive recent US economic data released. Currency values are subject to the whims of both a domestic and broader international market. These changes are motivated by a combination of increasing domestic and foreign economic circumstances.
Recent US economic surprises have brought a solid USD strengthening. The US Dollar Index (DXY) is commonly used to track the dollar’s value against a basket of currencies. As we write, it’s anking to 98.80. This position is not bullish dollar close to one-month highs, but indicates generally bullish sentiment for the dollar in the futures market. The JPY has withdrawn from its previous strength versus the USD. This change marks a big turnaround in investor sentiment and the current state of the market.
Apart from the impact of currency appreciation, rising US Treasury yields have played a role in boosting the dollar’s strength. These yields are viewed as barometers for the general health of the economy and thus affect investor appetite for investments in that currency. The recent spike in Treasury yields has only strengthened the dollar’s position against the yen.
US jobless claims rise to 1.914 million. That’s an increase from the last count of 1.858 million. Perhaps the only silver lining to come out of the four-week moving average of Initial Jobless Claims. It fell to 211,750, which was a decrease from 219,000. This decrease is the smallest deficit we’ve experienced since June 2009. It illustrates just how strong our labor market remains, despite the jump in claims this week.
Trade fundamentals have indeed been a stronger force in driving the recent currency fluctuations. Imports into the United States have recently dropped to a 21-month low. Meanwhile, imports have ballooned to an all-time high, parts in particular, largely because of continuing, tariff-driven volatility. This change indicates a significant shift in trade partnerships and can be reflected in currency values as markets react to changes in trade balance.
Japan has a different set of difficulties. Beijing has imposed restrictions on exports of “dual-use” items to Japan, raising concerns over potential supply chain disruptions. Additionally, an anti-dumping investigation into dichlorosilane imports from Japan has added another layer of complexity to trade relations between the two countries.
Additionally, Japan’s economic indicators point to continued softness in labor cash earnings growth, which increased only 0.5% year-over-year in November. So long as wages stagnate, consumer spending and overall economic performance will surely stall, which can only be weighing down the yen right now.
As all of these different influences collide, many observers are keeping a wary eye on currency markets for signs of impending upheaval. The USD is still very strong against the JPY, thanks to the recent positive economic data. On top of that, larger geopolitical dynamics are at work, influencing market sentiment going forward.