The yen was mildly weaker yesterday, but is strengthening this morning. Looking at our US dollar daily update, there is a bigger risk that Republicans will be unable to get a tax bill through Congress after Roy Moore lost his Senate seat. The yen is thus strengthening (particularly against the US dollar), as bond yields fall. Despite today's yen strength, upcoming US CPI numbers and the Federal Reserve meeting could have a significant impact on the currency. If US inflation keeps strengthening and the the Fed is more hawkish relative to expectations, the yen is likely to weaken as a result. In domestic news, machine orders were much stronger than expected. Recent economic data continues to point to strong GDP growth in Japan. Our medium-term outlook remains bearish.
USD/JPY is currently trading just above 113.30. Looking at the euro vs. the yen, EUR/JPY is down and is currently trading above 133.0.
This is a fairly light week for economic data releases relating to the yen. The corporate goods price index beat expectations (3.5% vs. 3.3% expected). The tertiary industry index was higher than the previous print (0.3% vs. -0.2% prior). Machinery orders were much stronger relative to expectations (2.3% vs. -2.8% expected). On Thursday we’ll see cross-border stock and bond investments. We’ll also see Nikkei manufacturing PMIs and industry production. Finally on Friday we’ll get a series of Tankan surveys. Last week, GDP growth beat expectations.
As the yen weakens as inflation expectations rise, we are downgrading the yen to bearish 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.