The Japanese yen sold off sharply yesterday, having been weak for the past few days. US bond yields rose yesterday following the Fed's Beige Book, which suggested that more interest rate hikes were likely given strong economic performance. Given the yen's sensitivity to interest rate differentials, the currency sold off as a result. Earlier this week, the yen was selling off on news that Trump favors John Taylor to be the next Fed Chair. We have downgraded our short-term outlook to bearish accordingly.
USD/JPY is currently trading just above 113.0. EUR/JPY is now above 133, and the pair is currently trading around 133.40.
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). Trade balance figures were better than expected (670b vs. 560 expected). Cross-border stock (841b) and bond (270b) figures suggest that foreigners continue to buy Japanese stocks and bonds. 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.
Thanks to a sharp rise in US bond yields recently, the Japanese yen has weakened considerably. As such, we are downgrading the yen to bearish in the short-term. While the yen looked oversold in late September, 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.