Japanese yen trading has been fairly wild this week. Yesterday, the yen strengthened after the stock market rout resumed in the US. Looking at the S&P 500, the index ended the day lower by 3.75%. Today, Asian stock markets are also lower, particularly in Greater China. Both Hong Kong and Shanghai's stock markets are down by 3%+. Despite the drop today, the Japanese yen has resumed weakening. While the stock market rout may be nearing its end, the yen is also weakening thanks to lower Japanese government bond (JGB) yields. Looking at 10-year JGBs, yields were lower today and have fallen to 0.070%. Global yields, on the other hand have been rising. US 10-year Treasuries are currently yielding 2.85%. As yield differentials widen, the yen has been selling off. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 109.10. EUR/JPY is currently up and trading above 134.0.
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.