The Japanese yen is finally weaker today, after strengthening for most of last week. Last week, we warned that the yen was looking technically overbought and ripe for a pullback. As risk appetite returns (and global stock markets rebound), safe haven demand is falling. As a result, the yen is weakening. Looking at stock markets, the S&P 500 ended the day flat last Friday while key Asian markets (including Japan's Nikkei 225) are up sharply today. Turning to domestic economic data, Japanese exports were ahead of expectations while imports were below expectations. The good news resulted in a larger-than-expected merchandise trade surplus for the country. The data bodes well for Japanese and regional economic growth, especially following disappointing GDP numbers last week. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 106.50. EUR/JPY is currently up and trading above 132.250.
Looking at Japanese economic data this week, markets will be focused on trade balances and the national consumer price index. Export growth (12.2% vs. 10.3% expected), import growth (7.9% vs. 8.3% expected) and the merchandise trade balance (-¥943.4b vs. -¥1,002.0b expected) were all ahead of expectations. The Reuters Tankan survey (29 vs. 35 prior) was lower than the previous print. On Wednesday, we’ll see Nikkei manufacturing PMIs and the all-industry activity index. On Thursday, we’ll get cross-border stock and bond investments. On Friday, we’ll see the national consumer price index. Last week, GDP growth numbers widely missed estimates.
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.