The Japanese yen is up against all major currencies today. The yen began strengthening yesterday following news that the Trump administration was seeking to reduce the trade deficit with China by $100b. An article in Politico also suggested that the White House is looking to implement more tariffs against China. As fears of a global trade war rise, the Japanese yen is strengthening as a response. Looking at the yen against various currencies today, the yen is the strongest against the Australian dollar and the US dollar.
Turning to data, cross-border capital flows turned negative last week. While foreigners continue to sell Japanese stocks, domestic residents made net purchases of foreign bonds. For the past few weeks, capital flows have been positive (capital has been flowing into Japan), as global risk sentiment deteriorates. As one of the world's largest overseas investors, Japanese residents (and financial institutions) tend to sell overseas assets and buy the domestic currency during downturns. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 106.0. EUR/JPY is currently down and trading above 131.180.
Looking at Japanese economic data this week, we'll see the BoJ's minutes and machinery orders. The MoM tertiary industry index (-0.6% vs. -0.2% expected) was below consensus expectations. The BoJ's meeting minutes suggest that the Bank remains on hold. YoY machinery orders (2.9% vs. 0.6% expected) were significantly ahead of expectations. Cross-border stock (-¥432.5b) and bond (+¥1,090.0b) flows turned negative last week (capital flowing out of Japan). Tomorrow, we'll see industrial production and capacity utilization. Last week, sentiment surveys pointed to decelerating growth while the Bank of Japan maintained the status quo.
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.