JPY continues to set the tone in currency markets - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that all year, JPY has had a life of its own and it has been driving broader trends in the currency markets. 

Key Quotes

“As such, economic trends in the USA have tended to take a backseat.  While it is true that recent economic reports and the election of Trump have contributed to the rebound in the USD, the power of the fall in JPY has surprised many and spilled over to a bigger rebound in the USD against other currencies.  The story in currency markets is at least equal parts USD strength and JPY weakness in November.”

“USD/JPY has been more highly correlated with longer-term US Treasury yields this year, and the rapid rebound in USD/JPY in recent weeks has coincided closely the surge in yields.  It may seem that JPY is following yields, but it is not all chicken and egg.  The strong JPY over the first three-quarters of the year was a key element in diminishing confidence in the effectiveness of NIRP/QE policy, falling inflation expectations and falling global yields.  The reversal in JPY strength is contributing to a revival in inflation expectations in Japan and globally and allowing the bond market to respond more forcefully to possible fiscal stimulus already underway and anticipated in the US, UK and other parts of the world.”

“We can see a case for global yields to continue to rise and JPY to fall as the global economy recovers, aided by extreme monetary policy easing measures in Europe, Japan, and the UK, relatively easy monetary policies in most parts of the world and a trend towards fiscal policy expansion globally.”