After breaching short-term oversold conditions, the Japanese yen is now taking breather. Given increasing expectations that Jerome Powell will be the next Chair of the US Federal Reserve, long-term rate hike expectations are falling given Powell's views. As such, US bond yields are falling. The yen is now strengthening as interest rate differentials continue to fall. We will shortly upgrade our short-term outlook on the yen to neutral (from bearish).
USD/JPY is currently trading just above 113.70. EUR/JPY is flat after falling sharply on Friday (following the ECB meeting on Thursday). The pair is currently trading below 131.90.
While the BoJ is set to announce its interest rate decision this week, expectations are limited for any change. Retail sales numbers missed expectations (2.2% vs. 2.5% expected). On Tuesday, we’ll get the unemployment rate and household spending. On Wednesday, the BoJ will announce its rate decision and hold a press conference. Finally, on Wednesday, we’ll get cross-border stock and bond investments. Last week saw low CPI figures miss expectations.
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.