What’s going on here?
The yen faced a whirlwind on Thursday after a sharp drop the day before, caused by unwinding carry trades and uncertain Japanese monetary policy.
What does this mean?
The yen’s swings are reacting to the Bank of Japan’s (BoJ) mixed signals on future rate hikes. It bounced between a 0.14% loss and a 0.85% gain after a 1.6% slide on Wednesday. Earlier this week, it hit a seven-month high at 141.675 per dollar, driven by weak US jobs data stirring recession fears. Investors unwound carry trades following an unexpected BoJ rate hike, initially boosting the yen. The July policy meeting summary hinted that some BoJ members favor continued rate increases, with one even suggesting rates could reach 1%.
Why should I care?
For markets: Market turbulence shakes yen stability.
Investors are eyeing the yen amid BoJ’s conflicting outlooks on rate hikes and market volatility. More carry trades unwinding might add to yen volatility. Traders are also hunting for dollar/yen bargains, mirroring the S&P index trends.
The bigger picture: Global ripple effects of yen volatility.
Demand for protection against major yen price swings hit a high since early 2023. The Swiss franc, another carry trade currency, climbed 0.6% after a recent dip. The dollar index dipped slightly but stayed above recent lows, while the euro and sterling held their ground. Upcoming US jobless claims data, July’s inflation report, and Fed Chair Powell’s speech at Jackson Hole Symposium could further drive market sentiment and volatility.
