The Japanese yen is weaker against most major currencies today, except the British pound. Yesterday, the yen weakened sharply against all major currencies. In the short-term, rising bond yields are helping the yen weaken. As the Bank of Japan fixes 10-year Japanese government bond yields around 0%, the yen is a relatively less attractive asset compared to most other currencies.
Looking at recent news, weaker-than-expected inflation figures had a limited impact on the currency. Between weak growth (announced earlier this week) and very weak inflation, the Bank of Japan is unlikely to tighten monetary policy any time soon. Thanks to supportive risk sentiment, the yen continues to trade as an inflation proxy - that is, the yen weakens when global interest rates strengthen. Given our outlook for rising inflation rates, a subject we covered in a recent analysis on gold, the yen is likely to continue weakening for now. Our short-term and medium-term outlook on the yen remains bearish.
USD/JPY is currently trading above 111.0. EUR/JPY is currently up and trading above 130.80.
In this week’s Japanese yen economic calendar, we’ll see growth and inflation data. The YoY domestic corporate goods price index for April (2%) met expectations. YoY Q1 GDP growth (-0.6% vs. 0% expected) and capacity utilization for March (0.5% vs. 1% expected) were both lower than expected. March industrial production (2.4% vs. 0.5% expected) was higher than expectations. March machinery orders (-2.4% vs., -0.3% expected) missed expectations. Foreign bond investments (+¥827.0b) and foreign investments in Japanese equities (+¥126.3b) suggests that capital continues to flow out of Japan. The national consumer price index for April (0.6% vs. 0.7% expected) was below expectations. Ex-food and energy CPI (0.7% vs. 0.8% expected) also missed expectations. Last week, Japanese wage growth accelerated above expectations.