JPY: Softer U.S. Tsy Yields Lend Support To Yen, Japan's CPI Data On Tap Today
A decline in U.S. Tsy yields drove USD/JPY lower on Thursday, despite solid performance from the main U.S. equity indices. The yen was among the main G10 gainers.
- Speaking after the BoJ decided to keep its ultra-loose monetary policy settings unchanged, Governor Kuroda emphasised that policymakers have "zero intention" of changing tack despite the weakening exchange rate. The yen came under pressure after his comments, but easily clawed back losses thereafter.
- U.S. Tsys were rattled by domestic data releases which fuelled recessionary fears. Philly Fed business survey came in particularly weak, while weekly initial jobless claims unexpectedly ticked higher.
- U.S./Japan 10-Year yield gap tightened to ~264bp, its narrowest level in two weeks. The spread is now ~59bp off its Jun 14 cyclical peak.
- Meanwhile, USD/JPY 1-month risk reversal climbed to its highest point since Jun 13, the day when it last returned into negative territory.
- Spot USD/JPY last trades at Y137.46, up 9 pips on the day, with bulls looking to a swing past Jul 14 high of Y139.39 before setting their sights on the psychological Y140.00 figure. Bears look for a dip through the 20-EMA at Y136.80, which would bring the key Jun 23 low of Y134.27 into view.
- CPI data today is expected to show that core inflation quickened to +2.2% Y/Y in June from +2.1% prior. While the BoJ's target is +2.0%, the Bank deems current price pressures to be driven by supply-side factors rather than the underlying strength of the economy.
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NZD: Kiwi Lags Rally In High-Beta FX
A record low reading of Westpac Consumer Confidence created a drag on the kiwi dollar Tuesday, even as the broader high-beta FX space capitalised from better risk backdrop.
- NZD/USD operates at $0.6329 at typing, near yesterday's closing levels. The key near-term layer of support has been defined at $0.6197, the low print of Jun 14. Bulls look for a rally above Jun 16 high of $0.6396, which would bring Jun 3 high of $0.6576 into play.
- Two of New Zealand's "Big Four" banks, ANZ and BNZ, announced sharp increases in interest rates on home loans and deposits this week as monetary conditions tighten.
- The market still fully prices a 50bp hike to the OCR next month, despite household budgets being squeezed by rising interest rates and higher costs of living.
- Data released this morning showed that New Zealand's monthly trade surplus shrank to NZ$263mn in May from NZ$440mn prior.
- Local credit card spending data will hit the wires later today.
JGB TECHS: (U2) Off Lows, But Still Fragile
- RES 3: 151.13 - High Mar 3
- RES 2: 150.44 - High Mar 14
- RES 1: 150.14 - High Apr 1 and key resistance
- PRICE: 147.88 @ 15:39 BST Jun 21
- SUP 1: 147.15 - Low Jun 14
- SUP 2: 147.08 - 3.0% Lower Bollinger Band
- SUP 3: 146.82 - Low Jul 14 2015
JGBs extended weakness last Tuesday, showing below a key technical support, marking the significance of this week’s volatility. JGB futures showed below the 1.0% 10-dma envelope for the first time since the depths of the COVID-19 crisis, touching 147.15 on the pull lower. Weakness is looking stretched at these levels, with the RSI spilling below 20. The next downside level crosses at 147.08, the 3.0% lower Bollinger Band ahead of 146.82 - the low from July 14th 2015.
JPY: Risk Reprieve Sends Yen To New 24-Year Lows
Spot USD/JPY refreshed its 24-year highs on Tuesday as continued recovery in risk sentiment and a decline in VIX index reduced demand for safe haven assets.
- A further uptick in U.S. Tsy yields after the public holiday in the U.S. facilitated the move in USD/JPY, as the spread with yields on JGBs widened anew, amid the BoJ's defiance of the global hawkish charge.
- The rally in spot USD/JPY was somewhat at odds with signals from the options space, as 1-month risk reversal faltered into European hours and only partially trimmed losses later in the day.
- Continued yen weakness runs the risk of becoming politicised as Japan enters campaign season ahead of the July 10 upper house election. Opposition CDP leader is already using the term "Kishida inflation" to associate the Prime Minister's support for ultra-easy monetary policy with yen weakness and resultant price increases.
- USD/JPY last deals at Y136.50, a touch lower on the day, with bulls looking for renewed gains above yesterday's high of Y136.70, followed by Oct 30, 1998 high of Y136.88. Conversely, key short-term support is at Y131.50, the low print of Jun 16.
- The remaining highlights on Japan's data docket for this week are flash Jibun Bank PMIs (Thursday) & national CPI (Friday).
- Elsewhere, the BoJ will publish the minutes from its April monetary policy meeting today, with Board member Amamiya set to speak on Friday.
Fig. 1: USD/JPY vs. U.S. 10-Year Tsy Yield (%)
Source: MNI - Market News/Bloomberg
