The Japanese yen is slightly weaker this morning following weakness last Friday as well. Looking at today's economic data, the Japanese current account was better than expected following strong export figures. Imports, on the other hand, were lower than expected. Given the yen's function as a funding currency for carry trades, the currency tends to sell off on good news. Looking at 10-year US government bond yields, the yen is falling as US bond yields rise. As we wrote in our US dollar daily update earlier today, optimism regarding the tax bill has only had a mild impact on the US dollar so far. We expect a bigger move if and when the tax bill gets through Congress. Our short-term and medium-term outlook remains bearish.
USD/JPY is currently trading just above 112.70. Looking at the euro versus the yen, EUR/JPY is up and is currently trading above 132.60.
This is a fairly important week for economic data and events relating to the yen. Japanese trade balances were better than expected (+¥113.4b vs. -¥54.9b expected). Thursday is the most important day. In addition to the usual cross-border stock and bond investments, there is also a Bank of Japan meeting scheduled. While the rate decision and the statement are unlikely to continue new information, markets are expecting the BoJ to curtail the scope of its quantitative easing program next year. Last week, the Tankan survey showed that Japanese businesses remain optimistic.
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.