Yen outlook worsens as traders turn bearish

TOKYO: The omens are looking bad for the yen.

Traders have boosted short positions on Japan’s currency for six straight weeks as signs that economic growth is slowing make it more likely the central bank will maintain its record monetary stimulus.

At the same time, global risk sentiment is improving as the United States and China near a deal to resolve their long-running trade dispute, sapping demand for haven assets.

Japanese data due this week may add to the bearish yen mood: economists predict machine orders probably shrank from a year earlier in February, while producer price inflation was near a twoyear low in March.

The Bank of Japan’s Tankan survey released last week showed manufacturers’ confidence tumbled the most in six years in the first quarter, while the government is set to raise the sales tax to 10 per cent, from eight per cent in October.

Even one normally yen-positive factor has so far failed to offer much relief. The extra yield on US Treasuries over Japanese government bonds fell to the lowest in more than a year last month, but only gave the yen a shortlived boost.

A more important factor than the yield spread appears to be investment flows. Japanese investors bought a net 7.85 trillion yen (RM287.40 billion) of overseas stocks and bonds this year through March 29, compared with 20.1 trillion yen they sent abroad last year, according to the Finance Ministry data.

The yen has fallen 2.8 per cent versus the dollar over the past three months to 111.67 per dollar late on Friday. A break beyond the March 5 low of 112.14 would put it at the weakest this year.

The technical outlook remains bearish. The dollar-yen currency pair has rallied after dropping to support at around 110 at the end of last month. Slow stochastics, a momentum indicator, shows a %D reading of 63, still below overbought territory, indicating there is still room for the pair to run higher.