JPY: Currency Index & Volatility

Relative Currency Strength

After spending the first day on the baseline, the JPY index started to grow on Thursday, against the background of the RBA governor’s speech, and by the time of the inflation numbers releases reached the level of 100.7. In the meantime, Glenn Stevens’ speech has caused the Pacific currencies to decline, and AUD and NZD indexes lost over 0.45 and 0.62 points, respectively. September 29 was rich with the Japanese data releases. Nevertheless, the index only gained 0.1 points and almost immediately started to fall. Greater-than-expected housing starts data roused another short-lived growth of the yen, and the index ended the period at the 100.48 mark.

Almost a month-long decrease of the yen index, caused by the Japan’s Pension Fund reform, seemed to have come to an end, and the past periods saw it start to recover. During the past five trading days the JPY Index was sharing the second-best’s status with the CAD gauge, but disappointing Canadian GDP pushed the Loonie down, and the yen ended the period losing only to the Greenback. The 2.08% decrease made the Kiwi the main loser of the period. The NZD Index was on a downtrend since the beginning of the period, and the confirmation of the RBNZ intervention in the currency market last month resulted in a dramatic fall of the Kiwi to its new one-year low.

Volatility

The first day of the period was relatively tranquil – the only noticeable spike of market volatility was caused by unexpectedly high home sales in the U.S. Three consequent peaks on Thursday followed the speeches of RBA, ECB and BoE heads. Japanese CPI release in the evening did make the volatility grow, but it didn’t even reach its historical average. JPY volatility followed the same pattern against the background of Monday’s news from Japan. On the other hand, Euro zone CPI announcement on Tuesday morning caused the greatest spike of the EUR Volatility Index currency’s and second highest of the market’s gauge.

The period was associated with moderate volatility values and medium portion of elevated volatility for both the market and the yen. As can be seen from tables, the New Zealand dollar was the period’s most volatile currency – its the Volatility Index reached the 5.27 level early on Monday. Moreover, the greatest peak of the market volatility took place at the same moment, and the JPY Volatility Index reached its maximum of 1.69 a couple of hours later. Despite the fact that a host of influential news on Japan’s economy was released during the period, there was no evidence of significantly growing turbulence which means no strong reaction to them.

Currency Significance

which resulted in weakening of the yen’s significance. However, the gauge rose notably overnight, when mixed data on CPI and positive data on investment in domestic market was released. The end of the week was associated with U.S. GDP release, so significance of the yen declined.

The beginning of the current trading week was marked with high correlations of the JPY pairs. During Monday the gauge varied around the 0.57 mark and remained on this relatively strong level against the background of late releases of variety of Japan’s macroeconomic indicators, including unexpectedly optimistic unemployment rate and retail sales. Nevertheless, all observed correlations weakened dramatically on Tuesday, when significantly positive change in German unemployment and UK and Canada’s GDP announcements made the currencies market drivers.

During the period the correlations of JPY pairs were mostly on their historical average levels. Only Tuesday stood out for low correlations that are reflected in the heavy lower tails of the component distributions.

The average correlation of JPY pairs, which measures yen’s significance on the market, started the period at a high 0.62 level, but in absence of influential news on Japan’s economy reduced down to the 0.4 mark towards the end of the day. The Aussie, the Euro, and the pound were in focus on Thursday, as the heads of the National Banks gave their comments on economic conditions.