The Japanese yen sold off sharply again today. US bond yields are rising after the US Senate passed the 2018 budget. The vote will allow Trump's tax reforms to pass without any possibility of a Democrat filibuster. Thus Trump now has to focus on winning the support of all remaining Republican senators who are opposed to his reforms. This raises the possibility of tax reforms getting through Congress, helping US bond yields to rise. Given the yen's sensitivity to interest rate differentials, the currency weakens when global bond yields rise. Most short-term yen bonds offer negative interest rates.
USD/JPY is currently trading just above 113.20. EUR/JPY is now above 133.70.
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.