Unlike the euro or commodity currencies, the yen has only marginally strengthened in the last few days. US bond yields have yet to turn lower, and thus the yen remains weak. Yesterday's FOMC minutes did not have a significant impact on the currency, given the relatively limited amount of new information. Given negative yen interest rates, USD/JPY is influenced by the difference in interest rates between US and Japanese bonds.
USD/JPY is currently trading just below 112.30, having declined below 113 last Friday. EUR/JPY is up quite a bit thanks to subsiding fears relating to Catalonia. The pair is currently trading above 133.20.
In this week’s economic data, markets will be watching economic surveys, machinery orders and services growth and cross-border investments. Tuesday's economic watcher’s survey figures (51.3) were stronger than the last print (49.7). Machinery orders were very strong (4.4% vs. 0.8% expected), but have had a limited impact on the currency. Today's corporate goods prices matched expectations (3% vs. 3% expected). On Friday, we’ll get cross-border stock and bond investment data. Given relatively strong survey data from Japan recently, investors will be looking for signs that economic growth is continuing.
After the yen weakened on October 11, we are now neutral on the currency in the short-term. The yen 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.
After strengthening in the first two weeks of October, we are upgrading the yen to neutral. As markets continue to wait for Trump's tax reforms, the yen bear market has run out of steam. 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.