DB FX Daily: Golden Week and USD/JPY

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FX Daily: Golden Week and USD/JPY

Golden Week and USD/JPY

Looking back at USD/JPY trading ranges before, during and after the Golden Week holiday period in Japan since 1990 there appears to be a tendency towards wider ranges before the holiday, smaller ranges during the week and a widening of ranges after the holiday. The chart at left below shows the average and median ranges for USD/JPY around the Golden Week holiday from 2000 to 2006 which is quite similar to the pattern observed over the 1990 to 2006 sample period. While there may be some consistency in the expansion and contraction of USD/JPY ranges around the holiday, there has been little in the way of a consistent direction for USD/JPY over this period as can be seen in the chart at right below. The week prior to Golden week has seen a 50/50 split for USD/JPY moving higher and lower. The week of Golden Week has seen a slight tendency for USD/JPY moving slightly higher since 1990 but the 200-2006 period has seen an even split between moves higher and lower..

Leaving historical trading patterns aside there are two key factors which could potentially move USD/JPY later this week. The first issue is the significant data releases this coming Friday including CPI, labour market data, IP and the BoJ's outlook on the economy and prices. JGB yields have been grinding steadily higher over recent trading sessions as the market has gradually advanced the timing of potential BoJ rate hikes in 2007. This has kept 2Y US-Japan and 2Y Eurozone-Japan spreads steady of late after widening significantly over earlier weeks though has yet to produce steady spread tightening. A second key factor is likely to be investment trust launches which tend to take place towards the end of calendar months though our Tokyo based strategists see the size of potential flows as within their recent range. For a more detailed account please see the FX Special Report "Post-G7 Developments" released late last week.