The Japanese yen was weaker yesterday (following the US Senate tax vote) and continues to sell off this morning. While USD/JPY was higher than 113 at one point yesterday, the pair has since retraced below 112.70. The next major events for the currency include the House/Senate reconciliation process and the upcoming government debt ceiling deadline this Friday. Assuming both hurdles can be surpassed, the yen has room to continue weakening. Given our bullish outlook for 10-year US government bond yields (bearish for bond prices) and our bearish medium-term outlook on the yen, future yen weakness seems likely.
USD/JPY is currently trading just above 112.50. Looking at the euro vs. the yen, EUR/JPY is up and is currently trading above 133.40.
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.