The Japanese yen continues to strengthen following the Bank of Japan's unexpected tapering of long-bond purchases yesterday. The currency is stronger against all major peers including the US dollar and the euro this morning. Despite surging US interest rates (looking at 10-year and 30-year yields), USD/JPY continues to sell off sharply. For now, concerns regarding future monetary policy are overshadowing yield differentials. The pair fell below 112 earlier this morning. While Governor Kuroda has yet to hint at tapering the ongoing asset buying program, the BoJ's decision to limit purchases of long-dated bond is the strongest indication in recent times that tapering is on the horizon. As markets price in a higher probability of monetary tightening, the yen is rallying as a result. Despite recent strength, our medium-term indicator continues to signal a bearish trend.
USD/JPY is currently trading above 111.70. EUR/JPY is currently down and trading above 133.40.
This is a fairly light week for economic data relating to the yen. Consumer confidence ticked down to 44.7 vs. 44.9 in the previous month. Later today, we'll see foreign reserves, the leading indicator and the coincident indicator. Finally on Friday, we'll get cross-border stock and bond investments as well as Eco-Watchers survey data. Last week, manufacturing and services PMIs missed expectations.
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.