The Japanese yen strengthened yesterday and is trading sideways this morning. After peaking just above 2.50%, US 10-year government bond yields have been falling. Looking at other government bond yields (including Germany and the UK), falling interest rates looks like a global phenomenon and this is driving recent yen strength. Thanks to the Bank of Japan's yield curve control program, 10-year Japanese government bond yields are fixed at 0%. This makes the yen especially sensitive to interest rate differentials. Our short-term and medium-term outlook remains bearish.
USD/JPY is currently trading just above 113.30. Looking at the euro versus the yen, EUR/JPY is down and is currently trading above 134.40.
This is a fairly important week for economic data and events relating to the yen. Japanese trade balances were better than expected (+¥113.4b vs. -¥54.9b expected). Cross-border stock (-¥622.5b) and bond investments (+¥51.0B) show that capital outflows continue. The Bank of Japan meeting was mostly a non-event, with Governor Kuroda suggesting no change in future monetary policy. Last week, the Tankan survey showed that Japanese businesses remain optimistic.