The yen has continued to weaken this morning, thanks to yesterday's good economic data and US dollar strength. Yesterday, 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. While there has been limited US dollar news in the past day, the currency continues to strengthen on positive momentum. We have adjusted our short-term outlook on the yen to bearish and USD/JPY to bullish.
USD/JPY is currently trading just below 113, having risen above 113 earlier this morning. EUR/JPY continues to trade flat, with the pair trading above 132.40 currently.
Looking at economic data this week, consumer confidence figures came in above the last reading (43.9 vs. 43.3 previous). 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 a weak start in October, we are bearish on the yen in the short-term. The currency continues to sell off on strong Japanese economic data (tankan surveys) and rising interest rate differentials against other currencies. Note that 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.