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The Japanese yen is currently up against all major currencies. Yesterday, the yen weakened against the US dollar for the second session in a row. Note that yesterday’s move was accompanied by decelerating trading volumes relative to the previous session. Volumes were also below 30-day averages. Weak volumes suggest that traders did not sell the currency with much conviction. Today’s USD/JPY trading range is 111.80 – 114.80.
In the short term, yen trading remains heavily influenced by changes in risk sentiment. While the currency weakened over the previous two sessions, the yen has resumed strengthening as equity and commodity markets move lower today. Looking across financial markets, major Asian equity markets ended the day lower today. Hong Kong’s Hang Seng Index fell by more than 3%, while Japan’s Nikkei 225 fell by more than 2.5%. Most European and US equity indices appear to be following suit. S&P 500 futures are currently lower by about 1% while Germany’s DAX is down by more than 1.5%. As a safe haven currency, the yen tends to strengthen in response to weakness in ‘risk on’ badets.
Turning to recent economic news, a Bank of Japan report suggests that Japanese banks have been too aggressive in their lending activities. According to Nikkei Asian Review, lenders have increased their activities targeting small business and real estate loans. The coincident index (a measure of current sentiment) is currently near highs last seen in the late 1980s and mid-2000s. Given the Bank of Japan’s concerns regarding excessive risk-taking, the central bank is more likely to consider tightening its monetary policies in the near future. All else held equal, tightening monetary policy is positive for the yen. Despite its concerns, the BoJ is unlikely to tighten monetary policy as economic conditions turn increasingly fragile. Our outlook on the yen remains neutral.
USD/JPY is currently trading above 112.30. EUR/JPY is down, and trading above 128.70. GBP/JPY is down, and trading above 145.80.
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