EUR/JPY - Euro to Japanese yen

EUR/JPY, or euro to Japanese yen, is a heavily traded currency pair. The Eurozone is the world's second largest economic region while Japan is the world's fourth-largest economy. As a safe haven currency, the yen tends to depreciate when global economic growth is high while sharply appreciating during downturns. The euro, on the other hand, tends to move in the opposite direction. Thus, the pair is often seen as a proxy for global sentiment. Prior to the French elections of 2017, investors went short EUR/JPY in order to hedge their long euro positions. Following the elections, the pair strengthened sharply as optimism returned to the Eurozone. 

Short term outlook
Bullish
Medium term outlook
Neutral

Euro daily update

The euro is mixed today. The common currency is selling off against the US dollar and the British pound, while making gains versus the the Australian dollar and the Japanese yen. Yesterday, the euro strengthened against the US dollar following significant weakness. Today, the currency has resumed weakening as the spread between US and Eurozone bond yields trades near all-time highs. 

Turning to recent news and events, German IFO expectations were significantly below estimates and slowed from previous monthly figures. As Eurozone sentiment data weakens, the outlook for growth this year is worsening as a result. In a previous commentary on the euro, we wrote that decelerating economic growth will ultimately force the ECB into more accommodative monetary policy. Yesterday, we published a  preview of the upcoming ECB meeting (scheduled for tomorrow). We argue that the Bank is unlikely to communicate any change in forward guidance (or hint at ending its asset buying program later this year). Instead, we argue that Draghi will buy more time to see if growth continues to decelerate this year. Our short-term outlook on the euro is bearish, while our medium-term outlook is neutral.  

EUR/USD is down slightly and trading above 1.2210. The euro is up slightly against the yen, with EUR/JPY trading above 133.20. Finally, the euro is down against the pound, with EUR/GBP above 0.8740.

Looking at this week’s economic events from the Eurozone, the most important event includes an upcoming ECB interest rate decision. Eurozone manufacturing PMIs for April (56 vs 56.1) were below expectations. Services (55 vs. 54.6 expected) and composite (55.2 vs. 54.9 expected) PMIs were ahead of expectations. German IFO expectations for April (98.7 vs. 99.5 expected) were significantly below estimates. Tomorrow, the most important day, we’ll see the ECB’s latest interest rate decision and hear from ECB President Draghi. We’ll also see May GfK consumer confidence from Germany. On Friday, we’ll get German unemployment figures. We’ll also see a range of sentiment data from the Eurozone for April (services sentiment, economic sentiment, business climate, industrial confidence and consumer confidence). Last week, the ZEW sentiment survey for April was below estimates.

Updated 

Japanese yen daily update

The Japanese yen is mostly lower today, and is selling off against all major currencies except the Australian dollar and the euro. Yesterday, the currency weakened alongside rising bond yields. Looking at USD/JPY, the pair managed to close higher despite overall weakness in the US dollar and a significant sell-off in the S&P 500 during US trading hours. While USD/JPY tends to track risk sentiment, the yen has become more sensitive to bond yields in recent times. 

With limited news headlines and developments from Japan, the yen is mostly trading as a function of bond yields. As Japanese 10-year bond yields are fixed around 0% by the Bank of Japan, the difference between US and Japanese yields is just under 3% (as US 10-year bonds are currently yielding around 3%). While higher US yields have failed to weaken the yen in the past, interest rates have been driving currency markets since late March. As we have written before, this is because slowing global growth is reducing optimism for riskier investments. In the past, investors ignored rising US yields and chased investments such as technology and emerging market stocks. Today, rising US bond yields are hurting asset values as global growth decelerates. Our short-term outlook on the yen is bearish, while our medium-term outlook is neutral.  

USD/JPY is currently trading above 109.20. EUR/JPY is currently up slightly and trading above 133.20.

Looking at Japanese economic data and events this week, the Bank of Japan’s upcoming meeting will be watched closely. The March Nikkei manufacturing PMI (53.3 vs. 52.6 expected) was ahead of expectations. The leading economic index for February (106 vs. 105.8 expected) was ahead of expectations. The All Industry Activity Index for February (0.4%) met expectations. Tomorrow, we’ll see foreign investment in Japanese equities and Japanese investment in foreign bonds. On Friday, the most important day, we’ll get the latest interest rate decision from the Bank of Japan, its outlook report and a press conference. We’ll also see the Tokyo consumer price index for April, the unemployment rate for March and March household spending. Finally, we’ll get March industrial production, and March retail sales, and March housing starts.

Updated 

Euro to Japanese yen Outlook

Short term outlook
Bullish

As the pair makes gains, we are now bullish on EUR/JPY in the short-term. Note that the pair is trading within a normal range - this is based on various technical indicators on a daily chart. 

Medium term outlook
Neutral

As the pair trades sideways, we are neutral on EUR/JPY in the medium-term. The pair is trading within normal conditions. This is based on various technical indicators when looking at a weekly chart. 

Updated 

Euro analysis

ECB preview: rising risks as consensus goes all-in

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Tags: Euro

Euro bull case hanging by a thread as economic cycle peaks

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Euro bull case challenged by political risks and slowing growth

Improving growth and falling political risk are pushing the Euro higher, but constant changes in the landscape put this movement at risk. Significant declining trends will impact the euro forecast - and speculators and traders should take note of the increased risk. 

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Tags: Euro

Japanese yen analysis

EUR/JPY: An “easy” long idea gets trickier

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Japanese yen: Bank of Japan versus interest rates

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BoJ preview: reversal rates and natural yield curves

As the Bank of Japan is one of the world’s most dovish central banks, market expectations for this week’s upcoming event are very limited. Governor Haruhiko Kuroda, who has overseen a $4T quantitative easing program and negative interest rates over his 5-year term at the Bank, is an unlikely candidate to bring about hawkish monetary policies. This is especially the case as domestic inflation rema…

Published 
Tags: Japanese yen

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