The Japanese yen is weakening against all major currencies today. The yen is currently the weakest against the Australian dollar and the Canadian dollar. Yesterday, the yen ended the day flat against the US dollar and the British pound, but weakened against the Australian dollar and the Canadian dollar. After Italy's government demanded debt forgiveness from the European Central Bank, EUR/JPY headed lower.
Looking at recent developments, March machinery orders were significantly below estimates. Recent data from Japan suggests significant weakness in its export sector. Overseas sales of machinery, not counted in core figures, fell by 7.2% year-over-year. As machinery orders are fairly volatile, traders will be watching upcoming figures to see if the overall trend is now bearish.
So far, reactions in the yen have been limited following bad news. As global equity prices move up and the yen remains weak, overall risk sentiment remains supported. Following the significant sell-off in late January earlier this year, traders are debating whether or not the growth slowdown is the beginning of a longer-term bearish trend. Thanks to worsening data and tougher base effects, we contend that a bigger downturn lies in store. Over the coming weeks, we expect the yen to enter a bullish trend. Our short-term and medium-term outlook on the yen remains bearish for now.
USD/JPY is currently trading above 110.50. EUR/JPY is currently up and trading above 130.60.
In this week’s Japanese yen economic calendar, we’ll see growth and inflation data. The YoY domestic corporate goods price index for April (2%) met expectations. YoY Q1 GDP growth (-0.6% vs. 0% expected) and capacity utilization for March (0.5% vs. 1% expected) were both lower than expected. March industrial production (2.4% vs. 0.5% expected) was higher than expectations. March machinery orders (-2.4% vs., -0.3% expected) missed expectations. Foreign bond investments (+¥827.0b) and foreign investments in Japanese equities (+¥126.3b) suggests that capital continues to flow out of Japan. Tomorrow, we’ll see the national consumer price index for April (as well as ex-food and energy CPI). Last week, Japanese wage growth accelerated above 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.