The Japanese yen ended the day slightly lower yesterday and is mostly weaker this morning. While the currency is flat against the US dollar, the yen is weaker against the euro and the pound. Looking at global bond yields, both US and German 10-year government bond yields were higher yesterday. Given the yen's sensitivity to yield differentials (as 10-year Japanese government bonds are fixed at 0% by the Bank of Japan), the yen weakens when global interest rates rise. Yesterday, we published our preview of the upcoming BoJ event this week. While immediate changes are not expected, there is a possibility that the Bank of Japan will hint at moving its bond yield targets in 2018 and beyond. Our short-term and medium-term outlook remains bearish.
USD/JPY is currently trading just above 112.50. Looking at the euro versus the yen, EUR/JPY is up and is currently trading above 132.80.
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.