The yen has been selling off this morning, both on domestic data and interest rate hike expectations in the US. The Bank of Japan's tankan survey showed that manufacturing growth is at the highest level in a decade. As positive data out of Japan typically boosts risk sentiment (causing Japanese investors to park their funds offshore), the yen fell on the news. Looking at the US, expectations are rising for a rate hike in December. This is following comments from Harker last Friday, a voting member of the Fed.
USD/JPY is currently trading above 112.80, having started the day below 112.50. EUR/JPY remains mostly flat, with the pair trading below 132.80 currently.
Looking at economic data this week, we'll see consumer confidence figures tomorrow. On Thursday, we'll see data regarding Japanese investments in foreign bonds and stocks. Finally, foreign reserve data and leading indicators will be published on Friday.
After rebounding on September 28 on dollar weakness, we are now neutral on the yen in the short-term. After peaking in the first week of September, the currency has sold off sharply in the rest of the month on waning North Korea-related risks and rising optimism for the US dollar. The yen currency index is now looking oversold in the short-term time frame, based on various technical indicators.
The yen has sold off for three consecutive weeks in September, and our medium-term outlook on the currency remains bearish. As political risks subside in the Korean Peninsula and expectations for interest rate hikes grow in the US, the yen has encountered a bout of weakness. Looking at the yen on a weekly chart, the currency remains far from overbought or oversold levels looking at various technical indicators. Thus trading conditions remain normal.