The yen fell sharply yesterday as global bond yields rose. Looking at data, US Core PCE met expectations (1.4%) while Eurozone flash CPI accelerated from the previous month (1.5% vs. 1.4% prior). In political news, Senator John McCain publicly backed the tax bill. As hopes for tax cuts rise, bond yields are rising as the outlook for future inflation improves. Given the yen's sensitivity to relative interest rates, the currency weakens as global interest rates rise. Our medium-term outlook on the yen remains bearish, while our short-term outlook is neutral.
USD/JPY is currently trading just above 112.60. Looking at the euro vs. the yen, EUR/JPY is up and is currently trading above 134.0.
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). National CPI (0.8%) and the unemployment rate (2.8%) met expectations, while household spending was better than expected (0% vs. -0.4% expected). 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.