Yen Outperformance Continues

The yen topped the G10 pile Monday as disappointing economic data released out of China and the U.S. underpinned demand for safer currencies.

• China's economic activity indicators for the month of July missed expectations, while U.S. Empire M'fing Index plunged well below the forecast level.
• A leg lower in USD/JPY coincided with a drop in U.S. Tsy yields, facilitated by weak U.S. data. The pair then tried to recoup losses but finished slightly below neutral levels.
• Come the end of play on Monday, U.S./Japan 10-year yield spread shrank ~4bp, while 2-year yield gap tightened ~3bp.
• Post-Asia equity resilience failed to reduce the yen's allure, even as European & U.S. benchmarks edged higher, while the VIX index trimmed the bulk of its initial gains.
• On the other hand, weaker commodities may have lent some support to the yen, owing to Japan's reliance on commodity imports.
• Spot USD/JPY has shed 17 pips this morning to last change hands at Y133.15. Bears look for losses past Aug 11 low/50-DMA at Y131.74/55 before setting their sights on the Aug 2 low of Y130.41. Bulls would be pleased by a rebound above Aug 8 high of Y135.58.
• Japan's flash Q2 GDP data released Monday came in slightly weaker than expected. Still, the economy finally recovered to its pre-pandemic levels as consumer spending picked up. The yen showed little to no reaction to the data.
• Trade balance and core machine orders will be published tomorrow, before focus turns to Friday's national CPI.