Better Mood Music, Hawkish Fedspeak Dent Yen

USD/JPY extended the rebound from its 100-DMA to two consecutive days, as the yen underperformed on Wednesday. The 50-DMA capped the rate's advance.

• The rate turned bid into the London morning, clawing back earlier losses. It continued to grind higher into the WMR fix, before stabilising towards the end of the day.
• Firmer risk sentiment sapped strength from the safe-haven yen amid decent performance from global equity markets and a drop in the VIX index.
• Positive musings re: earnings reports, expectation-beating U.S. data releases and the end of House Speaker Pelosi's contentious visit to Taiwan all aided sentiment.
• Fed messaging reaffirming the central bank's resolve in combating inflation exacerbated the yen's pain, raising the prospect of faster widening in monetary policy divergence with the ultra-dovish BoJ.
• USD/JPY held earlier gains even as U.S. Tsy yields dropped in NY hours, giving back their earlier advance, which resulted in the contraction of U.S./Japan 10-year yield gap.
• USD/JPY risk reversal soared across the curve, with tenors from 3-month out hitting best levels since mid-Jun.
• Spot USD/JPY is extending gains this morning, last deals +23 pips at Y134.09. If the 50-DMA at Y134.74 gives way, bulls could target Jul 27 high of Y137.46. Losses past the 100-DMA at Y130.57 would please bears, clearing the way to the round figure of Y130.00.
• Worth pointing to sizeable nearby option expiries coming up today. There is $1.4bn worth of options with strikes at Y133.00 due to roll off at the NY cut, with a further $2.4bn due to expire at Y134.80-00.
• The domestic docket is empty today, with earnings/spending data coming up tomorrow.