Yen Continues to Rise as Nikkei Closes With a 4-Year Record Decline


The story of the European and Asian session remains the massive gains in the Yen, as USD/JPY fell 250 points and below 101.00 for the first time in nearly two weeks. The Yen strength accompanies significant losses in European and Asian equities, as well as a US Futures showing a sharp tradeoff, therefore suggesting that the Yen strength is due to risk aversion.

Japan’s equity index Nikkei closed down 7.32%, the biggest daily decline since October 2008. The decline in Nikkei was attributed to comments from Fed Chief Bernanke suggesting an unwinding of QE if economic signs stabilize and due to a weaker than expected China Manufacturing PMI.

Japan’s officials immediately jumped into action and tried to return confidence to the markets. Economy Minister Amari said the decline today was a reaction to China, and said recent equity gains in Japan were faster than expected. He further remarked on the Yen move by saying hat it is natural for currencies and stocks to move together. Finance Minister Aso also spoke today, but declined to comment on the Yen level.

The Swiss Franc is also a big winner in today’s trading, which makes sense in a risk-aversion environment. However, what’s strange is USD is losing to most major currencies in today’s trading. USD is usually a risk-aversion correlated currency when trading against high-yield currencies like Aussie and Kiwi. Furthermore, many are saying Bernanke’s less-dovish comments were responsible for this risk-off trend, but less-dovish comments from the Fed should be US Dollar positive.

In economic releases, Euro-zone PMI’s slightly beat expectations in a preliminary release for May. The Euro rose slightly following the news. UK GDP was confirmed to have expanded by 0.3% in Q1, in line with a previous estimate released in April.

In Spain, 3,5, and 12-year bonds sold for 4.08 billion Euros, beating a maximum target of 4.0 billion Euros. 2026 bonds were sold for a 4.54% yield versus 4.336% on May 9.

USD/JPY seems to have found some interim support around the 101.00 line, but it is unclear if that means the decline is over. A rising trend line from May may provide resistance around 101.48.

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USDJPY 4-Hour: May 23, 2013

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Chart created by Benjamin Spier using Marketscope 2.0

--- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to .

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