The Japanese yen is once again strengthening against the US dollar this morning while trading flat against the euro and the Australian dollar. While the yen has reliably tracked 10-year bond yields in recent history, the currency has recently been strengthening in spite of rising yields. After the Bank of Japan tapered its purchased of long-dated government bonds, markets are starting to price in the possibility of tighter monetary policy in the near future. While the BoJ is unlikely to be happy with the direction of the currency, officials have mostly refrained from commenting on the currency. Our medium-term outlook on the yen remains neutral.
USD/JPY is currently trading above 110.8. EUR/JPY is currently down slightly and trading above 135.810.
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 thanks to changes in the Bank of Japan's policies, we are upgrading the yen to bullish in the short-term. Note that the currency is currently looking overbought, based on technical indicators on the daily chart.
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.