JPY: USD/JPY - GPIF Flow Would Be A Game-Changer, But Will They Follow Through

The NZD/USD had a range today of 0.5805-0.5823 in the Asia-Pac session; it is currently trading around 0.5820, +0.05%. The NZD has held up pretty well in Asia considering the escalation seen in the Middle-East. The NZD moved sharply lower last week after being rejected once more toward the 0.6000 area, moving very quickly back to the lows of its recent 0.5800-0.6000 range. The resurgence in the US Dollar has turned its fortunes around and the CFTC data showed the leveraged community did very well to use the bounce to reload shorts. It's still not clear that we should be piling into USD longs but I suspect that the market will be skewed toward that side in the short-term. On the day, while risk remains on the backfoot I suspect the 0.5845-0.5875 area could continue to see sellers with the bears aiming to have a look below 0.5800 and then ultimately challenge the uptrend around 0.5700-0.5730 at some point. 

• MNI - Increasing Global Supply Pressures Point To Rising Inflation. Global supply chain pressures rose to their highest in April since July 2022, according to the NY Fed’s index. Rising supply shortages are likely to continue putting upward pressure on global inflation. 
• Options : Closest significant option expiries for NY cut, based on DTCC data:   0.5775(NZD460m), 0.5800(NZD475m). Upcoming Close Strikes : 0.5820(NZD340m June 12), 0.5830(NZD526m June 15) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 50 Points

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

• As China brings a CNY90bn 10-Yr auction to market today, yields are steady at 1.73% whilst the 10-Yr bond future is down -.085 to 108.935.
• The move lower sees the 10-Yr future break below the 20-day EMA for the first time since the beginning of May.  
• Looking ahead to the auction schedule for June, there is a ramp up from here expected and could see further downward pressure on the future, upward pressure on yields.  
• The 10-yr yields bottomed out last week at 1.7% and has edged higher since.  
• Look for a controlled, steady ascent for the 10-Yr throughout June
• Data out earlier showed that whilst CPI was steady at +1.2%, PPI is accelerating.  Over the last year the relationship between PPI and CPI has broken down.  The risks are - given oil's impact across every part of the economy - that the rise in PPI is a warning for potential pick up in CPI.  

The USD/JPY range today has been 160.24-160.43 in the Asia-Pac session, it is currently trading around 160.35.  The pair remains well supported on dips and is now attempting to get a foothold above the MOF/BOJ “line in the sand”, almost taunting them to come back in. The MOF/BOJ have shown they are willing to back up their previous selling and have seemingly drawn a line in the sand above 160 but the market is pushing them into a corner. A move back above 160-161 would be problematic for them as it could see the pair begin to accelerate higher if they are not around to stop it. Where would USD/JPY be if they had not already spent $50-$70 billion, 165-170 ? Will they hold the line or wait for higher levels to come back in ? On the day, the first support is toward 159.50-159.00 and then the 158.00 area. The pullbacks have been few and far between and CFTC positioning shows the market is again sitting very short Yen as they continue to press the Japanese officials resolve. The underlying story regarding Yen weakness remains the same though and core positions are reflecting that. 

• MNI - PPI Stronger Than Forecast, Import Prices Surge To +25%y/y: Japan's May PPI rose 0.9%m/m, versus a 0.8% consensus forecast, while the Apr gain was revised up to a 2.8% gain (originally reported as 2.3%). In y/y terms the PPI rose 6.3%, against a 5.6% forecast (5.3% was the Apr outcome, also revised up). PPI momentum is back to 2023 levels and is pointing to a rebound in CPI y/y as we progress through 2026. This should support the case for continued BoJ policy normalization, although it remains to be seen if the market can price in more than around 2 hikes this year.
• Bloomberg - “Soft 30-Year JGB Sale Underscores Nerves Before US CPI. That’s a weak result for the Japanese 30-year bond auction with the bid-to-cover ratio under 3 for the first time in a year and a noticeably wider tail. JGB futures are extending declines as Asian investors continue to look hesitant ahead of the risks surrounding US inflation data due later today.”
• Options : Close significant option expiries for NY cut, based on DTCC data: 160.00($915m), 160.25($619m), 160.50($1.09b). Upcoming Close Strikes : 160.00($901m June 11), 160.25($936m June 11), 162.00($937m June 15) - BBG.
• The USD/JPY Average True Range(ATR) for the last 10 Trading days: 43 Points

Fig 1 : USD/JPY Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P