The Japanese yen is once again trading higher against all major currencies. Yesterday the yen managed to weaken by the end of the day as US equity markets performed reasonably well, and ended the day flat. Today, the yen has resumed strengthening. As one of the world's leading safe havens, strength in the yen is typically a warning sign for riskier assets such as equities and commodities.
The latest catalyst for the currency appears to be US politics. The yen began strengthening shortly after news broke that President Trump was looking to oust H.R. McMaster as his national security advisor. As the Trump administration becomes increasingly nationalistic, fears are rising that the President may instigate a trade war. Looking at domestic Japanese politics, Nikkei is reporting Abe knew that various documents were altered days before the Moritomo scandal became public knowledge. The Japanese opposition has accused Abe of a systematic cover-up. Our short-term and medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 105.70. EUR/JPY is currently down and trading above 130.10.
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). YoY industrial output (2.5% vs. 2.7% prior) and MoM capacity utilization (-7.1% vs. -0.1% expected) both missed expectations. 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.