The Japanese yen has been selling off for most of this week, and continues to sell off today. There are rising expectations of Trump's tax reforms passing Congress and rate hike expectations driven by news that Trump favors John Taylor to be the next Fed Chair. This is causing US bond yields to rise, helping the yen to weaken. Given the yen's safe haven status, the currency tends to closely follow interest rate differentials.
USD/JPY is currently trading just above 112.50, having strengthened beyond 112.50 earlier today. EUR/JPY is up this morning, and the pair is currently trading above 132.30.
This is another fairly light week for Japanese yen data releases. Wednesday's Reuters Tankan survey results were better than the previous figure (31 vs 25 previous). On Thursday, we’ll get trade balance figures (including exports and imports) as well as cross-border stock and bond numbers. 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.