The Japanese yen is mildly weaker today after the Bank of Japan increased its buying of medium-term Japanese government bonds (JGB). The currency is especially weak against the euro and commodity currencies such as the Australian dollar. As per the BoJ's yield curve control program, 10-year JGB yields are fixed at "around" 0%. The Bank of Japan recently increased its purchases of 10-year JGBs after yields rose to 0.095%. The BoJ frequently purchases JGBs as part of "rinban" (bond buying) operations. A few weeks ago, the yen strengthened after the Bank of Japan reduced its purchases of long-dated JGBs. At the time, traders speculated that the Bank may be engaging in "stealth" tapering. The latest move suggests that the Bank remains committed to monetary easing, in line with Governor Kuroda's recent speeches. Looking at technical indicators, the Japanese yen is no longer looking overbought on a daily chart. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 108.70. EUR/JPY is currently up and trading above 135.40.
This is a fairly light week for economic data relating to the yen. The unemployment rate (2.8% vs. 2.7% expected) and household spending (-0.1%) were below expectations. Retail sales were ahead of expectations (3.6% vs. 1.8% expected). Industrial production data was significantly ahead of estimates (4.2% vs. 1.9% expected). However, consumer confidence (44.7), housing starts (-2.1%) and construction orders (-8.1%) were below estimates. Looking at the BoJ summary of opinions, some members signaled their desire to curb monetary stimulus assuming growth and price trends continue to improve. Tomorrow, we’ll get cross-border stock and bond investments. Last week, the yen strengthened after Governor Kuroda signaled no change in the Bank of Japan’s monetary policies.
As the yen strengthens, we are upgrading the yen to bullish in the short-term. Note that the currency is looking overbought, based on technical indicators on the daily chart.
As the yen strengthens, 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.