Yen Consolidates on Cautious Sentiment Over Recent Weakness — Market Talk

The yen strengthens against other G-10 and Asian currencies in the morning session, amid growing risk-off sentiment spurred by regional stock-market losses. "It is the risk-off tone hurting stocks and other risk assets that is driving haven flows into Japanese yen," says Fawad Razaqzada, market analyst for global macro at Forex.com, in an email. "Given how heavily shorted the yen has been, it doesn't take much to spark a rapid drop in [cross-JPY] pairs, and that's exactly what we're seeing today," the analyst adds. USD/JPY drops 0.4% to 153.08, AUD/JPY slips 1.0% to 98.92 and EUR/JPY is 0.3% lower at 175.96, LSEG data show. (ronnie.harui@wsj.com)

The yen strengthens against most other G-10 and Asian currencies in the morning session amid risk-off sentiment. There have been news of two U.S. regional banks' disclosures of substantial loan issues, reigniting fears about credit quality in the sector, NAB's Rodrigo Catril says in commentary. "The volatility in regional banks, combined with the recent collapse of subprime lender Tricolor Holdings, has investors questioning the broader health of U.S. credit markets," the senior FX strategist adds. USD/JPY falls 0.2% to 150.12, AUD/JPY sheds 0.2% to 97.36, and SGD/JPY edges 0.1% lower to 116.17, FactSet data show. (ronnie.harui@wsj.com)

The yen strengthens against other G-10 and Asian currencies in the early Asian session. Given prospects that the Fed may cut rates in September and later in the year, this might lead to a narrower Japan-U.S. rate differential in favor of Japan's currency, market observers say. The yen could recoup more of July's losses, DBS Group Research's Philip Wee says in a recent commentary. This may happen if Fed rate-cut expectations overshadow the market's focus on delayed BOJ hikes and scale back more of the recent upward momentum in JGB yields, the senior FX strategist adds. USD/JPY falls 0.4% to 146.79 and AUD/JPY drops 0.3% to 96.20, FactSet data show. (ronnie.harui@wsj.com)

The yen strengthens against other G-10 and Asian currencies in the early morning session amid worries over U.S. tariffs. President Trump announced in a letter to Brazil's government on Wednesday that the U.S. will charge a 50% tariff on Brazilian goods starting Aug. 1. The 50% tariff is the highest unveiled so far amid Trump's wave of letters to world leaders this week. "The yen is drawing renewed safe-haven demand," StoneX's Matt Simpson says in commentary. Tariff risks and geopolitical tensions have returned to the spotlight, the senior market analyst says. USD/JPY falls 0.3% to 145.84 and AUD/JPY is 0.2% lower at 95.48, according to FactSet. (ronnie.harui@wsj.com)

So far, the market reaction to the weekend strikes undertaken by the United States on Iranian nuclear facilities has been relatively "muted," said Societe Generale.

The US dollar (USD) is a little stronger, with the Swiss franc (CHF) the only G10 currency up against it — and the Israeli shekel (ILS) is the top currency over the weekend, wrote the bank in a note to clients. The yen (JPY) is the biggest loser, with South Korea's KRW, Australia's AUD, New Zealand's NZD also softer.

Oil prices are up 0.3%, drifting back down after an initial spike. Equities are mixed, but U.S. futures are higher, and bond yields are, on average, slightly higher.

SocGen doesn't have the most up-to-date short-term speculative positioning data, but the chart plots CFTC data for 4our currencies against the USD, as a share of open interest. AUD and Canadian dollar (CAD or loonie) are still significant shorts, while the euro (EUR) and JPY are significant longs.

The JPY is comfortably the G10 currency that is most vulnerable to short-term nerves, stated the bank: Too many longs, too reliant on imported oil. China is the world's biggest consumer of oil imported through the Strait of Hormuz, but Japan is a little more reliant — nearly 50% of its oil imports come through the Strait.

China may be important as a potential negotiator against closing the Strait, but Japan strikes SocGen as having more to lose economically and given foreign exchange positioning, that leaves those JPY longs looking exposed and both and have upside from here, along with .

In the last few weeks, foreign exchange markets have bene getting more sensitive to economic data, but that might be out of the window now, added the bank. PMIs are on show Monday and neither JPY, nor AUD got any help from stronger data.

German PMI data were better than expected, but is anyone watching, asked SocGen. The bank will be watching U.S. PMI and existing home sales on Monday, but not with any expectation they will affect the US dollar.

Mostly, the bank will be waiting for any communications from Iran's Ayatollah Khamenei, or any other indications of retaliation.

Overall, though, markets have a muted reaction, with the USD and CHF benefiting. JPY and KRW are suffering the most.

The yen weakens against other G-10 and Asian currencies in the early session amid rising crude oil prices. "Higher oil prices are a positive for USD/JPY because the U.S. is a net energy exporter while Japan is a net energy importer," CBA's Global Economic & Markets Research team says in a note. Focus may also be on the BOJ and FOMC monetary-policy meetings this week. These meetings could inject volatility in AUD/JPY, CBA's team adds. USD/JPY is up 0.3% to 144.42, AUD/JPY edges 0.2% higher to 93.80, and EUR/JPY rises 0.1% to 166.70, FactSet data show. (ronnie.harui@wsj.com)