3 months ago
It whitethorn beryllium a coincidence, but the caller diminution successful the Nasdaq and bitcoin (BTC) coincides with a crisp emergence successful Japanese authorities enslaved yields and the strengthening of the safe-haven Japanese yen (JPY), reminiscent of the marketplace dynamics seen successful aboriginal August.
There could beryllium a causation here, as, for decades, the low-yielding yen propped up planetary plus prices. The ongoing emergence successful the Japanese yen whitethorn person had a manus successful the caller hazard aversion connected Wall Street and successful the crypto market.
That said, the bullish positioning successful the Japanese yen looks overstretched, with speculators holding grounds longs past week, according to the CFTC information tracked by MacroMicro. Such utmost bullish positioning, representing a corporate content successful a continued determination higher successful the asset, sets the signifier for disappointment, following, which a wide unwinding of longs unfolds, starring to a speedy bearish reversal.
In different words, the yen's emergence could stall for now, offering alleviation to hazard assets, including Nasdaq and bitcoin.
"We are present cautious connected chasing further JPY strength, fixed stretched speculative positioning arsenic good arsenic beardown dip-buying appetite from the home community," Morgan Stanley's G10 FX Strategy squad said successful a enactment to clients precocious Friday.
Strategists explained that galore Japanese investors usage the Nippon Individual Savings Account (NISA) strategy to drawback up overseas assets during risk-off, inadvertently slowing the gait of JPY appreciation. Additionally, the nationalist pension strategy tends to spell against the trend, rebalancing retired of JPY assets.
"Indeed, specified script happened successful past August aft a crisp appreciation of the JPY and the pronounced sell-off successful equities," strategists noted.
Let's spot if past repeats itself, triggering a renewed risk-on sentiment for Nasdaq and bitcoin. The USD/JPY brace turned up pursuing the July and aboriginal August descent to 140, yet rising to 158.50 by January. BTC turned up arsenic good from the aboriginal August clang to $50,000, rising to caller grounds highs supra $108,000 successful January.
At property time, bitcoin traded adjacent $80,300, representing a month-to-date diminution of astir 5%, extending February's 17.6% slide. At 1 constituent aboriginal Tuesday, prices dipped to $76,800, according to CoinDesk data.
Meanwhile, USD/JPY traded astatine 147.23, having enactment successful a five-month debased of 145.53 aboriginal Tuesday, TradingView information show.
Temporary respite?
While the stretched bull positioning and organization flows suggest alleviation ahead, these factors whitethorn bash small to change the broader bullish outlook for JPY, which is backed by a narrowing U.S.-Japanese enslaved output differential.
So, hazard plus bulls request to beryllium vigilant for signs of volatility successful the yen and the broader fiscal markets.
The illustration shows the dispersed betwixt yields connected the 10-year U.S. and Japanese authorities bonds.
The dispersed has narrowed to 2.68% successful a JPY-positive manner, reaching the lowest since August 2022. Plus, it has dived retired of a macro uptrend, suggesting a large bullish displacement successful the JPY outlook.
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