The yen is weakening this morning after strengthening for the last two trading sessions. Yesterday, the yen was exceptionally strong after the media reported that China was set to curtail its purchases of US treasury bonds. The US dollar and US treasuries fell sharply following the announcement. This morning, the Chinese authorities have denied the report, and the yen is selling off. Looking at USD/JPY, the pair fell to as low as 111.30 yesterday. Looking at Japanese economic data, foreign reserves rose while the leading and coincident indicator were higher than the previous print. Thanks to recent yen strength, we will upgrade our outlook on the currency later today. Specifically, we will upgrade our medium-term outlook to neutral and our short-term outlook to bullish.
USD/JPY is currently trading above 111.70. EUR/JPY is currently up and trading above 133.30.
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. Foreign reserves ($1,264.3b vs. $1,261.2b previously) were higher than the previous print. The leading indicator (2.1 vs. 0 prior) and the coincident indicator (1.7 vs. 0.2) were also above previous figures. Tomorrow, 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 on weak inflation data, we are upgrading the yen to neutral. 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.