• The Japanese currency is hovering near 2-⅕ month high
• Inflationary pressures are mounting on BOJ ahead of next week’s meeting 

The yen powered up in Asian trade on Friday against a basket of major rivals, resuming gains against the dollar and approaching 2-⅕ month highs. 

The yen has marked a stunning weekly performance so far, likely the best since April, as traders quickly unwind their carry trades ahead of Bank of Japan’s next week meeting, while the Federal Reserve is now fully expected to cut interest rates in September and November. 

Earlier official data showed Tokyo’s consumer prices rising in July, showcasing the increasing inflationary pressures on the central bank.

The Price

• The JPY/USD fell 0.35% today to 153.37 yen, with a session-high at 154.14. 
• The yen lost 0.1% on Thursday against the dollar, the first loss in four days on profit-taking away from 2-⅕ month highs at 151.94 yen. 

Weekly Trades

Across this week, the yen is up over 2.5% against the dollar so far, on track for the fourth weekly profit in a row, and the largest since late April.

What’s a Carry Trade?

Carry trades are one of the best and most important strategies used by traders to build long-term trading positions and utilize the interest rate gap between currencies. 

Carry trades entail the borrowing of low-yield currencies such as yen to buy high-yield currencies such as the dollar to gain from the rate difference. 

Unwinding Carry Trades 

Traders are rushing to unwind yen carry trades en masse amid speculation about the Bank of Japan’s next policy meeting.

Reuters reported the BOJ will discuss rate hikes, and will reveal plans to reduce bonds purchases by half in upcoming years. 

Conversely, recent weak US industrial data boosted the odds of Fed rate cuts in September and November to 100%. 

Thus the Bank of Japan is on track to normalize and tighten its policies, while the Federal Reserve prepares to ease its policies.

Tokyo Inflation

Earlier government data showed Tokyo’s consumer prices rose 2.2% in July, up from 2.1% in the previous reading.

Prices are now running above the 2% official target for policymakers, boosting the case for another Japanese rate hike this year. 

US stock indices rose on Thursday after positive data while investors assess corporate results. 

The preliminary reading of the US GDP data showed a growth rate of 2.8% in the second quarter, above estimates of 2.1%, and up from 1.4%. 

Investors continue to assess the latest corporate earnings data, including Amazon.com, and soon we’ll see Apple and Microsoft earnings. 

On trading, Dow Jones rose 1.1%, or 452 points as of 17:48 GMT to 40,306, while S&P 500 rose 0.9%, or 47 points to 5475, as NASDAQ added 0.8%, or 140 points to 17,487. 

Yen surged on Thursday against a basket of major rivals, extending gains against the dollar and scaling a 2-⅕ month high.

Yen’s stunning rise upended global markets and triggered heavy selloffs, with the markets already suffering the consequences of a heavy tech selloff. 

Yen’s surge came as traders rush to unwind Carry Trades before the Bank of Japan’s meeting next week, while the markets fully price in Fed rate cuts in September and November.

The Yen 

The USD/JPY pair fell 1.25% today to 151.94 yen per dollar, the lowest since May 3, with a session-high at 153.97. 

Yen rose 1.1% yesterday against the dollar, the largest profit since July 17. 

What’s a Carry Trade?

Carry trades are one of the best and most important strategies used by traders to build long-term trading positions and utilize the interest rate gap between currencies. 

Carry trades entail the borrowing of low-yield currencies such as yen to buy high-yield currencies such as the dollar to gain from the rate difference. 

Unwinding Carry Trades 

Traders are rushing to unwind yen carry trades en masse amid speculation about the Bank of Japan’s next policy meeting.

Reuters reported the BOJ will discuss rate hikes, and will reveal plans to reduce bonds purchases by half in upcoming years. 

Conversely, recent weak US industrial data boosted the odds of Fed rate cuts in September and November to 100%. 

Thus the Bank of Japan is on track to normalize and tighten its policies, while the Federal Reserve prepares to ease its policies.

Global Shares 

The global stock market suffered heavily in recent days from a tech selloff that sent the Nikkei index down 3.3% to a two-month low at 37,825.

The Dow Jones Stoxx Europe 600 index fell by over 0.9% to a two-month low. 

The NASDAQ shed over 1% to a seven-week lows at 18,721. 

Minerals Market 

Global metals are moving against established forecasts as the yen’s surge upends trends for the time being.

Gold fell by over 1.5% to $2358 an ounce, the worst since July 9.

Silver tumbled 5.5% to $27.42 an ounce, the lowest since May 9.

Crypto Market 

Despite the positive sentiment in the crypto market in recent days after the launch of ethereum exchange traded funds, cryptocurrencies still suffered heavy losses.

Bitcoin lost 2.4%, or $1,557 to $63,806, a week trough. 

• World’s most valuable cryptocurrency could fall below $60,000
• Markets waiting for Donald Trump’s speech at the bitcoin conference.

Bitcoin slid on Thursday to one-week lows on track for the fourth loss in a row as investors shun risks amid the violent unwinding of the yen carry trades. 

Traders are now waiting for a weekend speech by Donald Trump at the Bitcoin Conference in Nashville, at which he might announce a larger role for bitcoin in the US financial system.

Prices 

• Bitcoin fell 2.4% at Bitstamp today to $63,806, a week low, with a session-high at $65,607. 
• Bitcoin shed 0.9% on Wednesday, the third loss in a row as yen muscled up. 

Crypto Market Value 

The market value of cryptocurrencies fell by over $90 billion today to $2.420 trillion as both ethereum and bitcoin sustain losses. 

Yen’s Surge Upends Markets 

Yen spiked against main rivals today after the unwinding of the yen carry-trades, through which investors borrowed low-yield currencies such as yen, to buy high-yield currencies such as the dollar.

However, as the yen's prospects changed favorably and traders unwinded the carry trades, they bought massive amounts of yen and further boosted its standing. 

Yen’s movements contributed to the chaos already in place due to the heavy selloff in tech shares, which in combination served to drag global markets downwards. 

Investors are now rushing to reassess their long-term strategies and reduce risks amid the volatile conditions. 

Bitcoin Conference 

Trump will speak ahead of the Bitcoin Conference scheduled for later this month according to organizers, and he might shed light on his increasing support of the crypto industry, and the potential of a larger role for bitcoin and other cryptocurrencies in the US economy.