JPY: USD/JPY Back Above 130
USD/JPY has recaptured the 130.00 handle, levels last seen on the 11th of May. Rising core yields has driven a sharp turnaround in the pair, we are up close to 2.4% since the start of the week.
- JPY got little relief from weaker equities in the US and EU overnight. Falls were not aggressively sharp though and the US VIX index still ended the session down.
- Better US data, particularly the upside ISM print, has likely reduced recession fears to a degree. Fed speak overnight also pushed back against recession concerns.
- Such a backdrop has likely helped USD/JPY keep a fairly strong beta with respect to higher US yields. Note that Fed-dated OIS now prices in a post-Dec FOMC Fed Funds rate of ~2.80% (up from 2.73% late on Tuesday and ~2.65% at the close of play last week).
- The local data calendar is light, with monetary base figures due. Weekly foreign investment flow data is also on tap.
- Yesterday, BoJ Deputy Governor Wakatabe reiterated the BoJ's easing bias. He stated an easy policy bias needs to continue to address low inflation, while fresh easing can't be ruled out if downside risks to growth materialize. Wakatabe is a known dove.
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JPY: Yen Weakness Resumes
Broader greenback strength pushed USD/JPY higher on Monday, keeping the rate close to a cycle high printed last week at Y131.25. Participants were preparing for this week's Fed monetary policy meeting, after the BoJ last week stepped up the enforcement of its 10-year yield target.
- Yen weakness continues to fuel speculation on the potential for an intervention into FX markets, with Finance Ministry officials escalating their warnings on depreciation.
- There are question marks surrounding the efficacy of such an intervention, with sharp yen losses driven largely by the BoJ's ironclad commitment to its ultra-loose monetary policy settings.
- USD/JPY trades at Y130.14 at typing. Bullish focus falls on Apr 28 high of Y131.25, followed by the 1.00 proj of the Feb 24 - Mar 28 - 31 price swing at Y131.96. Bears keep an eye on Apr 28 low of Y128.34.
- Focus turns to monthly Tokyo CPI report, due for release on Friday.
JGB TECHS: (M2) Trend Condition Remains Bearish
- RES 3: 151.13 - High Mar 3
- RES 2: 150.44 - High Mar 14
- RES 1: 150.14 - High Apr 1
- PRICE: 149.30 @ 14:43 BST May 2
- SUP 1: 148.72 - Low Mar 28
- SUP 2: 148.69 - 3.0% Lower Bollinger Band
- SUP 3: 148.01 - 1.0% 10-dma envelope
The primary downtrend in JGBs remains intact although the recovery across the second half of April has given bears pause for thought. Nonetheless, the trend breach the 61.8% Fib for the 2015 - 2020 rally at 149.65 continues to weigh on prices and spells further losses toward 148.69/148.01, which marks both the 3.0% Lower Bollinger Band as well as the 1.0% 10-dma envelope. Resistance is at 150.14, Apr 1 high.
STIR: Pricing Of Supersized RBA Hike Later Today Unwound
The IB strip currently prices in a touch over ~16bp of tightening come the end of today’s RBA decision (per BBG WIRP), shy of the near ~24bp of tightening that was priced in on the back of the firmer than expected Q122 CPI data observed last week (this is based on the current effective cash rate of 6bp). The market is near enough priced to perfection for a 15bp rate hike after largely removing the pricing re: the deployment of a larger increment lift off.
