Will Santa Deliver A Stronger JPY Before Christmas?

Will Santa Deliver A Stronger JPY Before Christmas?

The Japanese yen (JPY) has been facing a tough year. The index measuring the JPY’s strength against a basket of other currencies (JXY) is down around 9.5% year-to-date. As of now, the index is at 87.97, having climbed from a yearly low of 86.60 in the past month. That 86.60 mark not only represented a low for the year, but also a four-and-a-half-year low (last seen in March 2017).

So, the question remains: will Santa bring a stronger JPY before Christmas?

Two key economic reports are expected to impact the JPY and the JXY over the coming week. The first, set for release on Wednesday, is the Monetary Policy Minutes from the Bank of Japan (BoJ). This report will provide insight into the BoJ’s decision to scale back some of its pandemic-related spending while maintaining its ultra-accommodative stance. Investors will closely watch for any signals about inflation in Japan, with a forecasted rate of 0.4%. The BoJ’s response to inflation—whether they acknowledge it or not—could have implications for JPY trading opportunities.

The second significant report is Japan’s Inflation YoY for November, which will be confirmed on Friday afternoon. While a 0.4% inflation rate isn’t expected to trigger any major changes from the BoJ, any deviation from this forecast could move the yen in either direction.

GBPJPY vs USDJPY

The potential upside for the JPY against the GBP might be stronger than against the USD. After the Bank of England surprised markets with a half-rate hike last Friday, the GBPJPY pair gave up a 1.3% appreciation. The markets are likely to remain choppy in the days leading up to Christmas, possibly providing an opportunity to buy into the JPY against the GBP. However, a similar move against the USD may be less likely, as both the JPY and USD are considered safe-haven currencies, and a “risk-off” environment could see both currencies strengthening.

Conclusion

As traders wait for the Bank of Japan’s next moves and economic reports to shape market expectations, the JPY’s short-term prospects may hinge on inflation data and central bank commentary. While opportunities for the JPY to strengthen against the GBP might be more viable, its performance against the USD could be muted due to the broader risk-off sentiment. As always, the holiday period could bring unpredictable market behavior, but keep an eye on these key reports for potential trading opportunities.