While the yen strengthened on Friday, the currency is falling sharply this morning. The big news is that the US Senate has passed its version of the tax bill. The next step in the process is to reconcile the House and Senate versions of the tax bill. As tax cuts get closer to reality, global bond yields are rising as a result. Given the yen's sensitivity to bond yields (10-year Japanese bond yields are fixed at 0% by the Bank of Japan), the yen is weakening. Our medium-term outlook on the yen remains bearish.
USD/JPY is currently trading just above 112.90. Looking at the euro vs. the yen, EUR/JPY is up and is currently trading above 133.80.
This is a fairly light week for economic data releases relating to the yen. Consumer confidence was stronger relative to the last print (44.9 vs. 44.5 prior). On Thursday we’ll see the Coincident Index, the Leading Economic Index and cross-border stock and bond investments. Finally on Friday we’ll get the Eco Watchers Survey and Q3 GDP growth. Last week, household spending was better than expected.
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.