The Japanese yen is mostly flat following recent strength. Looking at the currency against its major global peers, the yen is flat against the US dollar and the euro. The currency is higher against the Australian dollar, as AUD is weighed down by poor economic data. Turning to Japanese data, Nikkei manufacturing PMIs and capital spending figures both beat expectations. After fairly poor industrial production figures yesterday, there were growing concerns regarding the health of the underlying economy. Today's data is more helpful, and suggests that the manufacturing sector expects to keep expanding in the future. Looking at cross-border investments, foreigners sold Japanese equities last week while Japanese investors bought foreign bonds. Following recent net inflows, today's data suggests that capital is once again flowing out of Japan (weakening the yen). Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 106.70. EUR/JPY is currently flat and trading above 130.0.
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. MoM industrial production (-6.6% vs. -4.2% expected), retail sales (1.6% vs. 2.1% expected), and housing starts (-13.2% vs. 5% expected) were all lower than expected. Nikkei manufacturing PMIs (54.1 vs. 54 expected) and capital spending (4.3% vs. 3.1% expected) both beat expectations. Cross-border stock (-¥53.6b) and bond (¥201.3b) investments suggest capital outflows from the country. Tomorrow, 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.