Back To 142.00 On Higher Core Yields, Onshore Markets Remain Out

Yen faltered on the back of the rise in core yields, although on a relative value basis outperformed the rest of the G10 (except for CAD, while AUD dipped by the same amount as yen). USD/JPY hit highs of 142.21 in London Tuesday trade before pulling lower, we last tracked near 142.00 off 0.78% in yen terms for the session.

• The 20-day EMA sits higher at 143.23, while gains are considered corrective in the pair. Note the Dec 19 high at 144.96. Lows from late 2023 came in at 140.25.
• The US equity pull back aided yen outperformance, particularly against NOK, SEK and NZD, but less so elsewhere.
• EUR/JPY couldn't sustain levels above 156.25 on weaker EU fixed income, the pair last tracking near 155.35/40.
• US yield gains have underpinned the recent basing in USD/JPY. Assuming unchanged Japan yield levels, the 10yr rate differential is back above +330bps. We would expect some catch up from Japan markets, when onshore markets return tomorrow, but in the near-term US yield shifts will remain the larger driver of this spread.