Global and technical factors driving yen depreciation

JPY depreciation has been driven more by global and technical factors. JPY appreciation into late January was driven by the EUR selloff and falls in global bond yields on expectations of QE by the ECB.

These "ECB QE trades" were reversed in late April, initially sparking a sharp correction in Bunds, and JPY REER also began to depreciate, led by cross-yen markets. EURJPY was the clear leader, in terms of both magnitude and timing, consistent with the euro-centric nature of YTD dynamics, setting the stage for a broader JPY depreciation in subsequent weeks.

JPY depreciation accelerated on a combination of position unwinding in EUR/JPY and a cascade of options-related USD/JPY buying as it broke former ranges, sparking a sequence of reverse knock-out option barriers as holders of these positions and the dealer community bought USD/JPY