The Japanese yen is mixed today - the currency is selling off against the US dollar and the Canadian dollar, while making gains versus the British pound and the Australian dollar. Yesterday, the currency traded in a similar pattern. While the yen has weakened significantly since late March, we remain bullish on the currency's prospects in the medium term.
Turning to recent news and events, Japanese inflation met consensus expectations. As growth in Asia decelerates while domestic inflation remains below target, the Bank of Japan is more likely to maintain its existing stance. On the other hand, accelerating US inflation is driving US bond yields higher, making the US dollar relatively more attractive to the yen.
When US interest rates rose in the fourth quarter of last year, the rising yield differential helped USD/JPY strengthen towards 115. In early 2018, this relationship broke down as the US dollar weakened despite rising rates. As we wrote in today's US dollar daily update, the dollar is likely to re-establish its relationship with rates as global growth decelerates. The outlook for the yen is tricky, as the currency also tends to make gains when global growth is slowing (in spite of rising US interest rates). 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 107.50. EUR/JPY is currently flat and trading above 132.610.
Looking at Japanese economic data this week, important data releases include the trade balance and inflation figures. YoY February industrial production (1.6% vs. 2.3% expected) missed consensus estimates while February capacity utilization (1.3% vs. -0.3% expected) was better than estimates. The adjusted trade balance for March (¥119.2b vs. -¥98.5b expected) was better than consensus estimates. Foreign investment in Japanese equities (+¥308.3b) and Japanese investment in foreign bonds (+¥797.6b) both signal outflows from Japan. The YoY national consumer price index for March (1.1%) met expectations. Last week, the Eco-Watcher Survey results were below consensus 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.