The yen continues to strengthen this morning, particularly against the US dollar, while weakening against the euro and commodity currencies such as the Australian dollar. Despite rising US bond yields, the US dollar is fairly weak today. While USD/JPY is typically highly correlated to 10-year US government bond yields, today the two figures are moving in opposite directions. One potential reason for a weak US dollar may be related to substantial US dollar liquidity. As we wrote in this morning's gold daily update, US dollar supply since December 12 has been fairly abundant. Unlike USD/JPY, the correlation between 10-year German government bond yields and EUR/JPY appears to be intact. Both EUR/JPY and 10-year German rates are rising simultaneously. Despite recent strength in the yen, our short-term and medium-term trending indicators remain bearish.
USD/JPY is currently trading above 112.30. EUR/JPY is currently up slightly and trading above 135.40.
This is a fairly light week for economic data relating to the yen. On Wednesday, we'll see Nikkei manufacturing PMIs. On Thursday, we'll get services PMIs. Prior to the holidays, the last Bank of Japan meeting was largely a non-event. Many had believed that Governor Kuroda would signal a change of monetary policy at the last meeting, but this did not occur.
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.