The Japanese yen was up sharply yesterday following disappointing CPI data and Fed guidance. Looking at bond yields, 10-year US government bond yields fell sharply yesterday but are higher this morning. USD/JPY is following a similar path and is strengthening today after falling yesterday. Looking at Japanese news, Nikkei manufacturing PMIs, capacity utilization and industrial production figures all point to continued GDP growth. Recent economic data from Japan has been surprisingly strong. Cross-border stock and bond investments point to continued capital outflows, weakening the yen. Our medium-term outlook remains bearish.
USD/JPY is currently trading just above 112.80. 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. 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). Cross-border stock (-¥84.8b) and bond investments (-¥487.6b) show that capital outflows continue. Nikkei manufacturing PMIs (54.2) and industrial production (0.5%) show continued strength in the underlying economy. 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.