The Japanese yen strengthened sharply yesterday, thanks to the currency's function as a safe haven. In many ways, the yen is the ultimate safe haven as it tends to outperform traditional safe havens (such as the US dollar) during downturns. Looking at USD/JPY, the pair began the day around 110.10 but ended below 109.10. Trading in USD/JPY closely mirrored the stock market, and fell as a result. Today, the pair is trading flat as traders await further cues from the stock market. Looking at futures, equity futures have recovered most of today's losses after falling sharply earlier today. This may change as cash markets open in Europe and the US. If stock markets continue to fall, the yen is likely to keep strengthening. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 109.0. EUR/JPY is currently up slightly and trading above 135.180.
Looking at Japanese economic data, this is a fairly light week. Services PMIs (51.9 vs. 51.1 expected) were ahead of expectations. Tomorrow, 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.