The Japanese yen predictably weakened yesterday and continues to weaken this morning. German bond yields surged yesterday after the country's government announced a plan to issue more 30-year bonds next year. Global bond yields in developed countries rose sharply on the news. As Japanese 10-year government bond yields are fixed at 0% by the Bank of Japan, the yen weakens when interest rate differentials rise. Unsurprisingly, the yen has been particularly weak against the euro and the US dollar. In Japanese news, markets are waiting for the upcoming Bank of Japan event. We published our preview of the BoJ decision and Q&A earlier this week. Our short-term and medium-term outlook remains bearish.
USD/JPY is currently trading just above 113.10. Looking at the euro versus the yen, EUR/JPY is up and is currently trading above 133.90.
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.