The yen strengthened further yesterday, as US bond yields fell after the release of the Senate's tax bill. As the House and the Senate issued fairly different versions of the tax bill, markets are lowering their expectations of the bill getting through Congress. The US dollar is down as a result, and is no longer looking overbought. Given the yen's sensitivity to global bond yields, the currency strengthens when interest rate differentials fall. Through the Bank of Japan's 'yield curve control' program, 10-year Japanese bond yields are fixed at 0% through the Bank's bond trading program. Our short-term outlook on the yen remains bullish as a result.
USD/JPY is currently trading below 113.60. Looking at the euro vs. the yen, EUR/JPY is flat and is currently trading above 132.0.
Looking at the economic calendar for the yen, this week’s announcements include survey data, cross-border investment figures and a speech from the Bank of the Japan’s governor. On Monday, Governor Kuroda suggested that easy monetary policies will continue. Nikkei Services (53.4) and Composite PMIs (53.4) for October were both higher relative to previous figures. On Tuesday, labor cash earnings beat expectations (0.9% vs. 0.5% expected) while real cash earnings disappointed (-1% vs. -0.2% expected). The leading index (-0.6 vs. 2 prior) and the coincident index (-1.9 vs. 2 prior) were both lower, suggesting that future economic may be lower. The Eco Watchers survey was stronger versus the previous print (52.2 vs. 51.3 prior), machinery orders were much lower relative to expectations (-3.5% vs. 1.9% expected), and the current account was weaker relative to expectations (2271.2b vs. 2375.4b expected). Lastly, cross-border investment statistics suggest that Japanese investors continue to purchase more overseas stocks and bonds. Last week, retail sales missed expectations.
As the yen rebounds from oversold conditions, we are upgrading the yen to bullish in the short-term. Note that the currency is now trading within normal conditions, based on technical indicators on the daily chart.
After rising on lower global bond yields, we are upgrading the yen to neutral. Looking at the yen on a weekly chart, the currency is looking oversold based on various technical indicators. This is based on various technical indicators.