The Japanese yen is weakening against most major currencies today, except the Australian dollar. Looking at technical conditions, the yen is no longer looking overbought on a daily chart. Earlier this week, the Bank of Japan's purchases of 10-year Japanese Government Bonds signaled that the central bank remains committed to monetary easing. Turning to economic data, Japan's manufacturing sector continues to thrive. Nikkei manufacturing PMIs strengthened to 54.8 (vs. 54 previously), suggesting a sunny outlook for the country's manufacturing sector. Cross-border investments are now signaling outflows after many weeks of inflows. The yen tends to weaken when outflows surpass inflows. Earlier this week, we published a commentary arguing that calls for yen strength look premature as the BoJ is unlikely to signal tighter monetary policy in the near future. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 109.50. EUR/JPY is currently up and trading above 135.80.
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. Cross-border stock (-¥300.5b) and bond (+¥41.1b) investments suggest net outflows from Japan for the first time in many weeks. Nikkei manufacturing PMIs beat estimates (54.8 vs. 54.4 expected), suggesting a positive outlook for the country's significant manufacturing sector. 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 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.