The Japanese yen strengthened yesterday and is trading sideways this morning. After peaking just above 2.50%, US 10-year government bond yields have been falling. Looking at other government bond yields (including Germany and the UK), falling interest rates looks like a global phenomenon and this is driving recent yen strength. Thanks to the Bank of Japan's yield curve control program, 10-year Japanese government bond yields are fixed at 0%. This makes the yen especially sensitive to interest rate differentials. Our short-term and medium-term outlook remains bearish.
USD/JPY is currently trading just above 113.30. Looking at the euro versus the yen, EUR/JPY is down and is currently trading above 134.40.
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). Cross-border stock (-¥622.5b) and bond investments (+¥51.0B) show that capital outflows continue. The Bank of Japan meeting was mostly a non-event, with Governor Kuroda suggesting no change in future monetary policy. 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.