USDJPY TECHS: Bull Phase Intact

37,400 TYH6 108 puts, 1 ref 111-27.5 to -27, put remains well offered

St Louis Fed's Musalem (not a 2026 FOMC voter but a hawkish-leaning member) on Friday echoed comments he made prior to the December meeting in suggesting that it would be "unadvisable" to cut rates at this time. That said, if the data were to align, then he is open to the possibility of cuts in future. Key quotes from his speech: 

• He says he supported this week's decision to hold rates, and "given the current data and the balance of risks, I believe it would be unadvisable to lower the rate into accommodative territory at this time...I believe that policy is now well positioned to respond as needed to either of the Fed’s dual mandate objectives."
• But he appears to retain an easing bias: "I could support additional reductions in the policy rate if new evidence of labor market weakness or risks emerge, absent further signs of persistent above-target inflation or rising inflation expectations. I could also support lowering the nominal policy rate if expected inflation declines to target or falls below it."
• He notes that "Recent data indicate the labor market is regaining some of its footing" and his view is that "Although hiring remains soft, continued above trend economic growth should support the demand for labor while low levels of immigration limit growth in labor supply." Conversely he says inflation "has been stubborn" and , "but I expect inflation will resume a path toward 2% as tariff effects ebb later this year."
• He's upbeat on economic activity: "I expect the economy will continue to expand at or above its long-run trend rate in 2026...Reports indicate that consumer spending was especially strong in late December and into January...Supportive financial conditions are among [] tailwinds...changes in tax law and various forms of deregulation could also lift spending...Productivity growth is another potential tailwind" with his only real reservation being on the housing market which "has been weak for several quarters and poses some downside risk".

RRP usage climbs to $9.629B with 8 counterparties this afternoon vs. $2.852B Thursday. Compares to December 12 low of $0.838B (lowest level since mid-March 2021); this years highest excess liquidity measure: $460.731B on June 30.