USD/JPY is often playing tricks on FX traders, and this time it is completely avoiding volatility after gigantic up-and-down moves.
The Currency pair is known for its erratic price action, highly affected by movements in rates, global trade, and inflation, as well as regional and geopolitical developments, all of which have been severely affected since the beginning of the US-Iran conflict.
Seen as a major safe-haven currency since the early 2000s, profiting from lower yields in times of panic, the JPY could not find any appeal during this conflict.
Even as stock markets initially sold off, risk-off assets and currencies failed to gain traction, with the US Dollar and WTI Crude drawing all the attention.
Believing the conflict would stay focused on the Middle East, a wider flight to safety was avoided.
But the economic damage to Europe, and in the case of today’s USD/JPY outlook, Japan and Asia, is still heavy, and that led to massive rallies in the US Dollar against currencies from these regions.
You can see the strong correlation between USD/JPY and Oil movements in our recent analysis of the pair.
Add to this narrative a striking stall in inflation in Japan, which was the only path to justify a return to less accommodative policy, and Traders really found a natural terrain to race back to Japan shorts.
