The Japanese yen is weaker against most global peers today as stock market-related fears recede. Japan's Nikkei 225 ended the day higher today after falling yesterday. In previous days, the yen strengthened thanks to safe haven flows. Looking at the yen against riskier currencies, this explains why pairs such as AUD/JPY experienced such sharp sell-offs. If the stock market rebound resumes, the yen should continue broadly weakening. Turning to data, the Japanese balance of payments indicated a surplus, and was slightly larger than expected. Cross-border capital flows turned positive this week as investors sold foreign bonds. While domestic economic data had a limited impact on the yen in the past, monetary tightening expectations means that domestic data once again has an influence over the currency. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 109.50. EUR/JPY is currently down and trading above 134.330.
Looking at Japanese economic data, this is a fairly light week. Services PMIs (51.9 vs. 51.1 expected) were ahead of expectations. The leading index (107.9) and the coincident index (120.7) both suggest the expansion is set to continue. Cross-border stock (¥-126.7b) and bond (¥-866.6b) investments continue to indicate capital inflows into the country. The balance of payments was slightly larger than expected (¥583.9b vs. ¥567.7b). Last week, stock and bond cross-border investments turned negative for the first time in many weeks. This suggests that capital is now flowing out of Japan.
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.