The yen has been fairly weak this morning, as Asian investors sell the currency on rising optimism that Trump's tax reforms can become reality. The yen has also sold off following strong US economic data this week, including PMIs, trade balance figures and factory orders that all came in above expectations. Today, markets will be closely watching non-farm payroll data. Earlier in the week, the yen weakened on the Bank of Japan's tankan survey that showed manufacturing growth at its highest levels 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.
USD/JPY is currently trading just above 113. EUR/JPY is trading flat this morning, have weakened yesterday. The pair is currently trading above 132.0.
Looking at economic data this week, on Monday the BoJ's tankan's survey painted a rosy picture of manufacturing expectations (big manufacturers outlook of 19 vs. 16 expected). On Tuesday, consumer confidence figures came in above the last reading (43.9 vs. 43.3 previous). On Thursday, data showed that Japanese investors were selling foreign bonds while buying foreign stocks. Finally, today's foreign reserve data showed falling foreign reserves, while leading indicators were stronger than the prior figures.
After rising sharply on the morning of October 4, we are now neutral on the yen. The currency had previously entered oversold conditions, and was due for a technical pullback. Earlier, the yen sold off on strong Japanese economic data (tankan surveys) and rising interest rate differentials against other currencies.
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.