Japanese Yen

The Japanese Yen currently leads all eight major currencies with a macro strength score of +25. The biggest tailwind is interest rates. With a short-term rate around 1.3%, the Japanese Yen offers a meaningful yield advantage over most of its peers, which tends to attract capital into the currency. Positioning is supportive: relative to the other majors, large speculators are leaning in favour of the Japanese Yen rather than against it. Markets are relatively calm and risk appetite is healthy, which takes some shine off the Japanese Yen. As a safe-haven currency, it draws less demand when investors are confident enough to chase yield elsewhere. The underlying economy is a bright spot — tight labour markets and solid employment data give the Japanese Yen an extra edge over currencies where the jobs picture is deteriorating. The trend is positive — the score has gained 12 points over recent weeks. On a valuation basis, the currency looks stretched versus its own one-year range, which raises the odds of a near-term pullback.