Risk avoidance risk-averse movement

As the US-Japan interest rate gap widens further, yen is strengthening.

It is not a flight to quality (moving funds to safer investments to avoid losses during unstable market periods). The yen is not a safe-haven asset.

Until now, positions have been long the dollar from the US-Japan rate gap, but not from market view; to suppress risk, positions are being neutralized.

Why try to avoid risk?

In March's FOMC (there is no FOMC in February), the concern is not a 0.25% rate hike but a sudden 0.5% increase. If that happens,for the first time in 22 yearsnobody knows what will happen, so for now they are fleeing.

Therefore, for the market to settle, the Fed needs to clearly (or at least implicitly) indicate its March policy, or speculative longs need to neutralize. Alternatively, economic data that undermines a 0.5% hike in March would be needed.

However, if ISM index falls to 48 or nonfarm payrolls rise by a negative 500,000 month over month, that would flip the stock market as well. In short, data related to prices that suggest inflation is cooling is desirable.

What makes the market tricky is that even if the Fed does not clearly (or implicitly) indicate its March policy, investors may take positions hoping for comments from the Fed that would calm the market.

If you think it through, it’s about yen depreciation/dollar appreciation. Do not be swayed by speculative-position adjustments.

Can you keep taking dollar long because of that?

If you actually invest, that becomes difficult as well.

While continuing to long the dollar, Japan's inflation could surge, forcing the BoJ to raise rates. It’s not impossible. Oh, the dilemma.