The Japanese yen is mostly stronger today, thanks to safe haven flows. Following strong US non-farm payrolls figures last Friday, riskier assets such as stocks and commodities have been weakening. While the yen initially weakened on Friday, today it is strengthening thanks to ongoing weakness in risky assets. As a safe haven, the yen tends to strengthen during downturns. Thanks to surging global bond yields, yield differentials between most international bonds are now at a record versus Japanese bonds. As the Bank of Japan is expected to maintain yield curve control (for reasons we discussed in a recent commentary), the yen may resume weakening in the near future. Turning to data, recent services PMIs were ahead of expectations. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 109.90. EUR/JPY is currently down and trading above 136.830.
Looking at Japanese economic data, this is a fairly light week. Services PMIs (51.9 vs. 51.1 expected) were ahead of expectations. On Wednesday, we’ll see the leading indicator and the coincident indicator. On Thursday, we’ll see cross-border stock and bond investments. Last week, stock and bond cross-border investments turned negative for the first time in many weeks. This suggests that capital is now flowing out of Japan.