The Japanese yen is currently strengthening against all major currencies today. The yen is currently the strongest against the euro and the Canadian dollar. Yesterday, the yen started the day on a fairly weak note, but strengthened during European and US trading hours. While USD/JPY traded as low as 108.940 at one point in the day, the pair strengthened as traders bought US equities later in the day. As today is a public holiday in Japan (Greenery Day), there are no significant economic or political updates from the country.
Following recent strength, we expect to upgrade our short-term outlook on the yen to neutral over the coming days. When risk sentiment is moderate, the yen tends to track relative interest rates. As 10-year Japanese government bond yields are fixed at 0% by the Bank of Japan, the currency is exceptionally sensitive to foreign interest rates. When fear rises, the yen trades as a safe haven currency instead, and tends to strengthen. Between slowing economic growth in many parts of the world and rising US-China trade tensions, the yen has many reasons to strengthen in the near future. For now, our short-term and medium-term outlook on the yen is bearish.
USD/JPY is currently trading above 109.0. EUR/JPY is currently down and trading above 130.560.
This is a relatively light week for the Japanese yen economic calendar. Monday was a public holiday in Japan (Showa Day). Markit manufacturing PMIs for April (53.8 vs. 53.3 expected) were better than consensus estimates. Markit services PMIs (52.5 vs. 51.7 expected) were ahead of expectations while the consumer confidence index for April (43.6 vs. 44.6 expected) fell below expectations. Thursday and Friday are also public holidays in the country (Constitution Day and Greenery Day). Last week, the Bank of Japan kept future guidance unchanged and remained committed to “powerful” monetary easing.
As the yen trades weakens, we are now bearish on the yen. 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.