The Yen's Intermediate-Term Trend
Key points:
- The yen's Risk Reversal 5-day average crossed above 1 on September 4, the 40th occurrence since 2004.
- The yen then satisfied all three conditions on a single day, triggering the 15th Triple Signal.
- At 4 to 6 months, the Triple Signal's historical profile has been the more favorable one.
The options signal moved first
The yen is no ordinary currency move at this point. If USD/JPY keeps declining, markets will increasingly focus on whether cross-asset positions funded by cheap yen in recent years still need to be unwound.
The 5-day simple moving average of Japanese Yen Risk Reversal crossed above 1. Risk Reversal measures the skew in options pricing, and the cross tells us options traders repriced the yen's risk.
After those signals, the median forward return sits near zero at one month, turns negative from four months, and reaches -1.6% at one year with only 37% of cases positive. On its own, the Risk Reversal cross has offered no stable intermediate-term directional edge.
Then