The Japanese yen is strengthening against the US dollar this morning while trading sideways against most other currencies. While global bond yields (including US yields) are mostly higher, the yen continues to strengthen based on rate hike expectations. As we wrote last week, the yen strengthened after the Bank of Japan tapered its purchases of long-dated government bonds. The move was interpreted by markets as a sign of future tightening. Looking at USD/JPY, the pair rejected 111.50 earlier today and is now trading just above 111.0. Looking at recent economic data, cross-border stock and bond investments continue to suggest net capital inflows (strengthening the yen). Our medium-term outlook on the yen remains neutral.
USD/JPY is currently trading above 111.0. EUR/JPY is currently up slightly and trading above 135.90.
This is a fairly light week for economic data relating to the yen. The All Industry activity index was ahead of expectations (1.1% vs. 0.4% forecast). Machinery orders were significantly ahead of expectations (4.1% vs. -0.7% expected). Cross-border stock (¥498.7b) and bond (¥953.5b) investments continue to suggest capital inflows. Last week, cross-border investments continue to show net inflows into the yen.
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.