The short-term yen bear market continues, thanks to rising US bond yields. Bond yields are heading up thanks to increasing expectations that John Taylor may be the next US Federal Reserve Chair (based on news reports announced yesterday). Given Taylor's belief that interest rates should be higher, bond yields are rising which is helping the yen to weaken. Looking at futures data, 96.7% of speculators are currently betting on another rate hike in December. 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. Looking at news, Japanese insurers have publicly stated their intention to continue buying US bonds. As Japanese investors sell yen in exchange for USD investments, the yen is expected to keep weakening.
USD/JPY is currently trading just above 113.90. The pair was trading closer to 112 in mid October. EUR/JPY is also up, and currently trading above 134.0.
There is a fair amount on the calendar this week relating to Japanese data releases. On Monday, we saw the coincident index (117.7 vs. 115.7 previous) and the leading economic index (107.2 vs. 105.2 previous) rise above the previous print. On Thursday, we'll get cross-border bond and stock investments. Finally on Friday, we'll see consumer price index numbers. Given the weak outlook for inflation, CPI data is unlikely to have a significant impact on the yen.
After falling sharply on rising US bond yields and Abe's victory in the recent national elections, we are downgrading the yen to bearish. 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.