Following the US Senate's vote to begin debating the tax bill, the yen has been selling off. The currency continues to weaken this morning. This is an important day for the yen given upcoming Core PCE numbers in the US and Eurozone CPI figures. Yesterday, German CPI beat expectations. If inflation accelerates in the coming months, the yen should weaken substantially as expectations for interest rate expectations rise around the world. Given the yen's sensitivity to global bond yields. the currency weakens as interest rates go higher.
USD/JPY is currently trading just above 112.40. Looking at the euro vs. the yen, EUR/JPY is up and is currently trading above 133.0.
This is a fairly light week for economic data releases relating to the yen. Large Retailer's Sales were better than estimates (-0.7% vs -0.8% expected) while retail sales met expectations (-0.2%). Cross-border stock investments show continued outflows (-156.2b) while bond investments show inflows (+135.6b). Finally on Friday we'll see National CPI, the unemployment rate and household spending. Last week, the trade balance missed estimates.
As the yen strengthens on the weak inflation outlook, we are upgrading the yen to neutral in the short-term. Note that the currency is trading within normal conditions, based on technical indicators on the daily chart.
As the yen sells off on hopes for US tax cuts, we are downgrading the yen to bearish. 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.