The Japanese yen is currently weakening against all major currencies. The yen is currently the weakest against the US dollar, the Canadian dollar and the British pound. While the yen was mostly stronger yesterday (ahead of Trump's Iran nuclear deal decision), the currency is weakening today as inflation is more likely to accelerate in the near future.
In recent history, the yen has struggled between its identity as both a safe haven currency (which rallies during downturns) and a proxy for low interest rates. While the yen served its safe have function yesterday, today the currency is taking cues from the bond market. As explained in our US dollar daily update, inflation is likely to accelerate following Trump's decision to walk away from the Iran nuclear deal. As the Bank of Japan has fixed 10-year Japanese government bond yields to 0%, the yen is fairly sensitive to interest rates outside Japan. As global bond yields rise in response to the prospect of accelerating inflation, the yen is weakening today as a result.
Turning to recent developments, yesterday's data showed that Japanese wage growth was ahead of expectations. The data will be welcomed by the Bank of Japan, which has struggled with weak inflation for decades. Unfortunately, the picture for growth is not as benign thanks to other economic indicators, such as the leading economic index. The latest index figures suggest a deteriorating outlook for growth this year. Our short-term and medium-term outlook on the yen is bearish.
USD/JPY is currently trading above 109.70. EUR/JPY is currently up and trading above 129.80.
This is a relatively light week for the Japanese yen economic calendar. The BoJ’s monetary policy meeting minutes contained no changes to monetary policy. Household spending for March (-0.7% vs. 1.1% expected) was below expectations. YoY March labor cash earnings (2.1% vs. 1.1% expected) were higher than expected while the leading economic index for March (105 vs. 105.2) was below expectations. Tomorrow, we’ll see the BoJ’s summary of opinions (its growth and inflation forecasts), as well as the March current account and the Eco Watchers survey outlook for April. In addition, we’ll see the usual weekly figures for Japanese investments in foreign bonds and foreign investments in Japanese equities. On Friday, we’ll see M2 figures for April. Last week, Markit manufacturing PMIs were slightly ahead of expectations.
As the yen runs out of steam, we are now bearish 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 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.