While the Japanese yen has weakened for most of this week, the currency is higher against all its major peers today. The yen is currently strongest against the British pound and the euro. Following FOMC minutes released yesterday, the US dollar and US Treasury yields are rising while riskier assets such as stocks and commodities are falling. Given reactions across asset markets, the possibility of more rate hikes this year is a threat to the current bull market. As a safe haven, the yen tends to rally when global risk sentiment falls. Interestingly, the yen is rallying despite the surge in global bonds yields. Looking at 10-year US Treasuries, yields are currently trading at levels last seen in early 2011. As we wrote in previous editions of the yen daily update, the currency has broken its correlation with relative interest rates since mid-December. Instead, the yen has been trading as a function of monetary policy expectations and global risk sentiment in recent history. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 107.30. EUR/JPY is currently down and trading above 131.770.
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. Nikkei manufacturing PMIs (54 vs. 55.2 expected) missed estimates while the all-industry activity index (0.5% MoM) met estimates. Cross-border stock (¥127.1b) and bond (¥-553.1b) investments continue to suggest net inflows into the country. Tomorrow, 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.