Weaker Yen Emerges as Key Trend to Trade on Amid Fed Taper Bets

Weaker Yen Emerges as Key Trend to Trade on Amid Fed Taper Bets

The yen has emerged as the best bet for currency traders looking to position for tapering of Federal Reserve stimulus. 

The Japanese currency has weakened almost 4% versus the dollar in the past three weeks, the worst performance among its Group-of-10 peers. Yet, signs are growing this may be just the beginning of much bigger declines to come.

The greenback, which traded in a tight range for six months, has embarked on an impressive run as monetary-policy outlooks diverge between the U.S. and Japan. The prospect of the Fed scaling back its asset purchases next month, and completing the process by mid-2022, has sent Treasuries sharply lower at a time the Bank of Japan is seen maintaining its policy mix unchanged. 

If history is any guide, the yen may be on course for losses exceeding 10%. In 2012-2015, similar policy divergence became the main driver of a sustained decline in the yen.


Both fundamentals and technicals are working against the yen now.

An has been no friend to yen bulls as Japan is one of the biggest importers of oil. With West Texas Intermediate crude surging by a third in less than two months, the pressure on yen has only increased.

Charts suggest that the dollar-yen pair could rally strong should key resistance at 114.55 be taken over. Options gauges show that bullish greenback bets have taken over while traders in London and Frankfurt say that large hedge funds and real-money accounts are just getting started in following the momentum.



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Rate differentials, higher oil prices can make for big trend