The yen is slightly weaker this morning, and is now more closely tracking changes in global bond yields. Looking at USD/JPY, the pair has fallen for the last four trading sessions. This morning, USD/JPY has strengthened above 112.30, following a sharp rise in 10-year US government bond yields yesterday. After closing at 2.462% yesterday, 10-year US bonds are currently yielding 2.47%. Given the Bank of Japan's yield curve control program (whereby 10-year Japanese government bond yields are fixed at 0%), the currency is highly sensitive to yield differentials. Despite today's strength, the yen has further to weaken based on US 10-year yields. While our medium-term outlook on the yen remains bearish, we will upgrade our short-term outlook to neutral following recent yen strength.
USD/JPY is currently trading above 112.30. EUR/JPY is currently down and trading above 135.20.
This is a fairly light week for economic data relating to the yen. On Thursday, we'll see Nikkei manufacturing PMIs. On Friday, we'll get services PMIs. Prior to the holidays, the last Bank of Japan meeting was largely a non-event. Many had believed that Governor Kuroda would signal a change of monetary policy at the last meeting, but this did not occur.