The Japanese yen continues to sell off today, and is the weakest against the US dollar, the Australian dollar and the Canadian dollar. While we warned that the yen was looking overbought on a daily chart last week, this is no longer the case today. Historically, the yen has traded as a function of relative interest rates. While this relationship broke down last December (as traders bet on the Bank of Japan adjusting its yield curve control program), today's yen weakness is likely to be aided by fears of inflation (which is driving rates higher). Thanks to the re-appointment of Kuroda to the Bank of Japan, the Bank is more likely to stick to the status quo. Turning to economic data, we'll see Nikkei manufacturing PMIs and cross-border investments later this week. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 107.0. EUR/JPY is currently up slightly and trading above 132.360.
Looking at Japanese economic data this week, markets will be focused on trade balances and the national consumer price index. Export growth (12.2% vs. 10.3% expected), import growth (7.9% vs. 8.3% expected) and the merchandise trade balance (-¥943.4b vs. -¥1,002.0b expected) were all ahead of expectations. The Reuters Tankan survey (29 vs. 35 prior) was lower than the previous print. On Wednesday, we’ll see Nikkei manufacturing PMIs and the all-industry activity index. On Thursday, we’ll get cross-border stock and bond investments. On Friday, we’ll see the national consumer price index. Last week, GDP growth numbers widely missed estimates.