The Japanese yen is up today thanks to fears of a trade war. The currency is strengthening against all major currencies. The yen is the strongest against the Canadian dollar, the Australian dollar and the British pound. The yen began strengthening shortly after economic adviser Gary Cohn announced his resignation. As we wrote in our US dollar daily update, Cohn was one of the few pro-free trade members of the White House. Following his resignation. Trump's proposed tariffs are looking more likely to pass. As trade wars are negative for future growth, traders are buying safe haven assets such as the Japanese yen in response. So far, the move up in the yen has been relatively limited. If Trump formally implements tariffs, expect the yen to rally even further. Turning to economic data, the leading indicator was worse than expected, suggest a weak outlook for Japanese GDP growth. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 105.60. EUR/JPY is currently down and trading above 131.20.
Looking at Japanese economic data this week, we'll see Q4 GDP figures and hear from the Bank of Japan. Markit services PMIs missed expectations (51.7 vs. 52 expected). The leading economic index (104.8 vs. 106.2 expected) was below consensus estimates. On Thursday, the most important day, we'll see cross-border stock and bond investments. More importantly, we'll see Q4 GDP growth figures. We'll also see the trade balance and the Eco-Watchers survey. On Friday, we'll see inflation for January. Governor Kuroda will deliver his monetary policy statement at the upcoming BoJ meeting. No changes to interest rates are expected. Last week, manufacturing PMIs remained healthy while industrial production contracted.
As the yen strengthens, we are upgrading the yen to bullish in the short-term. Note that the currency is trading within a normal range, based on technical indicators on the daily chart.
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.