The yen strengthened yesterday, as global bond yields continued to fall. This morning, the currency has changed direction and is now weakening. The yen is weakening the most against currencies such as the US dollar, Australian dollar and the Canadian dollar. Looking at a daily chart of the currency, the yen was looking overbought yesterday. The upcoming US House vote on the tax bill will be critical for the yen, as lower taxes will improve the inflation outlook. Given the yen's sensitivity to bond yields, higher inflation (when GDP growth is accelerating) should result in a weaker yen. Our outlook on the yen remains neutral.
USD/JPY is currently trading above 113.20. Looking at the euro vs. the yen, EUR/JPY is up and is currently trading above 133.30.
This is a fairly slow week for economic data releases relating to the yen. Corporate Goods Price Index numbers were stronger versus expectations (3.4% vs. 3.1% expected). GDP growth figures announced earlier today met expectations (0.3% quarter-over-quarter). Looking at cross-border stock and bond investments, Foreigners are buying more Japanese equities while Japanese residents continue to buy overseas bonds. Last week, net outflows based on cross-border investments were negative.
As bullish momentum ends and the yen trades sideways, we are downgrading the yen to neutral in the short-term. Note that the currency is looking overbought, 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 trading within normal conditions. This is based on various technical indicators when looking at a weekly chart.