Despite the trend of rising US bond yields, the Japanese yen has not weakened proportionally. Looking at USD/JPY, the pair is starting to look overbought in the short-term. While this does not suggest that a pullback is imminent, caution is warranted. Our short-term outlook and medium-term outlook on the yen remains bearish. Yesterday, we published our thoughts on why USD/JPY is likely to go higher in the longer term thanks to rising inflation and Trump's tax reforms.
USD/JPY is currently trading just above 114.10. EUR/JPY is down sharply, following yesterday's ECB meeting. The pair is currently trading above 132.70. After looking overbought earlier in the week, the pair is now trading within normal conditions.
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. Earlier today, cross-border stock and bond data showed that Japanese investors continued to sell foreign securities. Foreign investment in Japanese stocks came in at ¥686.0B while foreign bond investments came in ¥10.9B. Today's CPI data missed expectations, with year-over-year national CPI coming in at 0.7% (vs. 0.8% expected). Low inflation means that the Bank of Japan is likely to maintain its ultra loose monetary policies.
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 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.