The Japanese yen is slightly weaker today. Looking at the currency against its major global peers, the yen is the weakest against the euro and the pound. Recent weakness against the euro is relatively surprising given significant political risks from the Eurozone this week. As the yen is typically used to hedge political risks, EUR/JPY is expected to weaken. Instead, the pair is higher today. As we wrote in a commentary yesterday, rising political risks and falling sentiment is a sign that the euro rally is starting to run out of steam. Turning to Japanese economic data, we'll see retail sales and manufacturing PMIs later this week. Q4 Japanese GDP growth was below estimates, bringing into question whether the current expansion is set to continue. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 107.0. EUR/JPY is currently flat and trading above 132.0.
Looking at Japanese economic data this week, we’ll see retail sales and core inflation figures. The leading economic index for December (107.4 vs. 108.3 expected) was below consensus estimates. On Wednesday, we’ll see industrial production, retail sales, and housing starts. On Thursday, we’ll see cross-border stock and bond investments. On Friday, we’ll see core (ex-food and energy) National CPI, as well as unemployment figures. Last week, cross-border flows suggested a continuation of net inflows into 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.