The yen has now strengthened for the last two days, and particularly against the US dollar. Yesterday saw US bond yields fall, following earlier moves in gold. As a result, the Japanese yen is strengthening. US bond yields remains weak, and the latest political news from Washington is unlikely to help. Trump recently signed an executive order allowing for more competition in the healthcare market, while cancelling subsidies to health insurers. Given the general outlook on US politics these days, the news is likely to be negative for US yields, helping the yen.
USD/JPY is currently trading just below 111.90, having declined below 112 earlier today. EUR/JPY has been down for the last two days, thanks to recent yen strength. The pair is currently trading below 132.40.
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. Yesterday's corporate goods prices matched expectations (3% vs. 3% expected). Today's foreign stock and bond investment data showed capital continues to flow into the country, supporting the yen. Given relatively strong survey data from Japan recently, investors will be looking for signs that economic growth is continuing.
After the yen strengthened on October 12 and 13, we are now bullish 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.