JAPAN: No Change In Direction In High Frequency Bond & Equity Flow Data
The latest round of international security flow data out of Japan revealed nothing in the way of meaningful trend changes, with net flows moderating owing to the holiday period in Japan. Japanese investors extended their run of net selling foreign bonds and buying foreign equities, while foreigners sold Japanese bonds and bought Japanese equities.
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US TSYS: Fresh Cycle Low For TYM2
Futures have softened in early Asia trade, with a lack of headline drivers apparent. TYM2 has moved through Monday’s trough to last deal -0-07 at 119-17 after printing as low as 119-14+, with the latter representing a fresh cycle low. A quick reminder that moving average studies continue to point south, with the contact’s primary technical downtrend remaining intact. The next level of meaningful technical support is located at the Dec 3 ’18 low, based on a continuation chart (119-04+).
JGBS: Futures Little Changed Overnight, BoJ Trading Band Limits Eyed
JGB futures were little changed overnight, closing 1 tick below settlement levels after the contract managed to show through Tokyo lows on several occasions.
- Note that the proximity of 10-Year JGB yields to the upper limit of the BoJ’s permitted trading band (~0.24% at Monday’s close vs. the 0.25% upper limit) is limiting sell offs out to 10s.
- Still, early Asia weakness in U.S. Tsy futures may result in some pressure at the Tokyo re-open/resultant action from the BoJ.
- 5-Year JGB supply headlines the domestic docket on Tuesday, with PPI & bank lending data also due.
JPY: USD/JPY On A Tear As Recent Cycle High Gives Way
Fed/BoJ policy divergence continued to fuel a rally in USD/JPY on Monday. The rate soared further as the Tokyo session high/Mar 28 high of Y125.00/125.09 gave way into the London morning, with gains eventually capped at Y125.77. The clearance of Y125.00 suggests that participants started to see potential intervention around that level as unlikely, even as Japanese officials have recently frowned upon rapid yen depreciation.
- Yesterday's rally above Y125.00/125.09 coincided with notable upswings in implied USD/JPY volatilities across the curve, albeit it should be noted that recent cycle peaks remain intact for now.
- Spot USD/JPY trades at Y125.51 at typing, up 13 pips on the day. A move through yesterday's/Jun 5, 2016 highs at Y125.77/125.86 would bring May 17, 2002 high of Y128.15 into view. Bears look for a pullback under Apr 6 & 7 lows at Y123.47, before targeting Mar 31 low at Y121.28.
- In late Tokyo hours Monday the BoJ lowered its assessment on the economy in eight out of nine regions amid the wave of Covid-19 infections and supply-chain bottlenecks.
- Japan's PPI will hit the wires later today, with core machine orders coming up Wednesday. Also on Wednesday, BoJ Gov Kuroda will speak to the Trust Companies Assembly.
