The publication of the minutes of the June FOMC meeting, where the Federal funds rate was raised to 2%, the release of data on the US labor market for June and the expectations of the counteraction of opponents in trade wars fuel the interest of investors towards the Japanese yen. On the one hand, the closure of the position of carry traders in the conditions of the second-quarter developing countries, which is sad for the monetary units, the return to the funding currencies, the fall of the Shanghai Composite and the Chinese yuan increase the demand for safe haven assets. On the other hand, the different vectors of monetary policy of the Fed and the Bank of Japan are pushing the USD/JPY quotes in the direction of monthly highs.

Currently, the amount of import duties introduced in 2018 is equivalent to 4% of US imports and 0.5% of GDP. A drop in the ocean. The insignificant amount of tariffs allows the markets to ignore the factor of trade wars and the yen does not bring any special dividends. Large-scale military operations are another matter. Washington threatens to add another $200 billion + $200 billion to Beijing's existing restrictions. The EU puts an ultimatum to the US: if you introduce duties on car imports, we will respond the same for $300 billion. This is a serious amount that could slow the global economy by disrupting supply chains, which will immediately affect stock indices and global risk appetite. However, while all this is not happening, the attention of investors is focused on monetary policy.

The Bank of Japan is gradually coming out of QE ,but the financial markets are missing it. The regulator has reduced the volume of purchases of assets with maturities from 5 to 10 years at £20 billion to £410 billion. This is the third time it has been committed during 2018, however, the yen has strengthened only in the first case. In the second, it showed reduced sensitivity, which allowed the BoJ to act confidently for the third time. The total amount of the quantitative easing program in fact for the last 12 months is less than £50 trillion, although the central bank declared a £80 trillion growth in the monetary base. While the yield of bonds is already close to the target, it is not required to show heroism. Especially as the volatility of the yen is declining.

The dynamics of the bond yield of Japan and the volatility of the yen

Curiously, according to a survey of Tankan for more than 10,000 large companies of Japan, respondents see the drop of USD/JPY to the mark of 107.26 amid the escalation of the trade conflict and the status of the yen as a safe haven currency. In the previous quarter, expectations for July-September were 109.68.

Further dynamics of the pair will depend on the mood of the Fed and statistics on the US labor market. The publication of the minutes of the last FOMC meeting will allow investors to clarify the mood of the central bank. Whether it is ready to raise the Federal funds rate four times in 2018 or prefers a gradual and slow normalization of monetary policy.

Technically, on the USD/JPY daily chart the realization of the "Splash and shelf" pattern continues. A breakthrough of the resistance at 110.95 will increase the risk of reaching the pair of the upper border of the downward trading channel by quotations.

USD/JPY daily chart