After strengthening for a few days in a row, the Japanese yen weakened yesterday and continues to trade down this morning. A Bloomberg report suggesting that Trump was favoring John Taylor to be the next Fed Chair resulted in lower bond yields and a stronger dollar. Given the yen's sensitivity to US interest rates, the currency weakened accordingly. If the yen continues to weaken today, we are likely to upgrade our short-term outlook on the currency to bearish later this week. In domestic news, Abe looks set to continue as Prime Minister due to the lack of credible alternatives. The Party of Hope ran out of momentum once Koike refused to leave her position as the Governor of Tokyo in order to run in national elections.
USD/JPY is currently trading just above 112.20, having strengthened beyond 112 yesterday. EUR/JPY is down this morning, and the pair is currently trading below 132.0.
This is another fairly light week for Japanese yen data releases. On Wednesday, we’ll get trade balance figures (including exports and imports) as well as cross-border stock and bond numbers. On Thursday, we’ll see industry activity data. Given the upcoming elections on October 22 (this coming Sunday), markets will be watching election news closely. As per our last update, the Party of Hope (the new opposition party founded by Tokyo’s current Governor) appears to be losing momentum in the polls.
After US bond yields rose on October 16, given John Taylor's rising odds to be the next Fed Chair, the yen weakened as a result. Thus we are now neutral on the yen in the short-term. The yen had previously entered oversold conditions, and was due for a rebound. Today the currency has re-entered normal trading conditions.
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.