The yen is weaker against most currencies this morning, and especially against the euro. As commodity prices make new highs, inflation expectations are rising which is negative for rate-sensitive currencies such as the Japanese yen. This is because rising inflation tends to elicit a tighter monetary policy in response (which is bad for bonds). Thanks to the Bank of Japan's yield curve control program, the yen is fairly sensitive to 10-year global bond yields. As long as commodity prices remain elevated, the yen should stay weak. While we see risks to the ongoing commodity rally due to elevated speculator sentiment, it's still too early to be calling for yen strength. Our medium-term outlook remains bearish.
USD/JPY is currently trading above 112.50. EUR/JPY is currently up and trading above 135.40.
This is a fairly light week for economic data relating to the yen. Nikkei manufacturing PMIs missed expectations slightly (54.2 vs. 54 expected). Tomorrow, 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 strengthens thanks to a weak US dollar, we are upgrading the yen to neutral 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.