The Japanese yen is currently weakening against all major currencies except the Australian dollar. The currency is the weakest against the US dollar and the Canadian dollar. Yesterday, the currency initially strengthened after China retaliated against US tariffs imposed on the country. Later in the day, the yen changed directions after Larry Kudlow (a White House official) suggested that the US and China were not heading for a trade war. Looking at USD/JPY, the pair has staged a remarkable turnaround in the past 24 hours. The pair bottomed around 106 yesterday and is currently trading above 107.
Turning to data, cross-border investment flows are now showing net inflows into Japan. While foreigners bought Japanese stocks last week, Japanese investors sold a larger number of foreign bonds. Our short-term outlook on the yen is neutral, while our medium-term outlook on the yen remains bullish.
USD/JPY is currently trading above 107.10. EUR/JPY is currently up and trading below 131.30.
Looking at Japanese economic data this week, we’ll see sentiment surveys and cross-border investment data. The Tankan large manufacturing outlook (24 vs. 25 expected) missed consensus estimates while Nikkei manufacturing PMIs (53.1 vs. 52.9 expected) were ahead of expectations. Nikkei services PMIs (50.9 vs. 51.6 expected) were below consensus expectations. The net result of foreign investments in Japanese stocks (+¥228.8b) and foreign bond investments by Japanese investors (¥-774.3b) suggest capital inflows into Japan. Tomorrow, we’ll see household spending, and the leading economic index. Sentiment data from Japan has been decelerating this year. Last week, retail sales missed expectations.
As the yen runs out of steam, we are now neutral on the yen 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.