The markets opened up more than 100 points in the first hour of trading as investors seem content to wait out the markets this week ahead of the Federal Reserve's September FOMC meeting, where the central bank will decide whether it will hike interest rates for the first time since 2006.
The yen has "a bit more" room to fall before its costs outweigh the benefits, one of the architects of the reflationary policies of Japanese premier Shinzo Abe said on Friday, dismissing fears that more monetary easing could fuel unwelcome declines.
The euro and yen fell across the board on Tuesday as stronger-than-expected German data and rising European stock prices prompted investors to wind back some of the risk aversion that has recently dominated currency markets.
While this week’s U.S. data doesn’t have a massive direct influence on GBP/JPY, the pair is still a good barometer of risk sentiment in the market and should react to changes in traders’ risk appetite. GBP/JPY has clearly taken a turn for the worse over the last few weeks.
This week could be another volatile one for the stock markets. Now, you may be wondering why we are concentrating on the Nikkei as opposed to, say, a U.S. index, given the sheer number of high-impact U.S. data in the week ahead.
Amidst the recent global market turmoil, I’d like to postulate that “We are all USD/JPY traders now.” That’s because USD/JPY has become the de facto measure of risk appetite of late, leading to correlated moves in equities, commodities, bonds, and even other currency pairs. The most salient short-term example of this phenomenon is the recent roller coaster ride in U.S. equities.
The dollar rose on Wednesday as some calm returned to currency markets with Wall Street stock futures pointing to a firm start and European shares recouping some of their losses, all of which lessened the need to buy safe-haven currencies like the yen.