Intervention Talk Rife With USD/JPY Testing Cyclical Highs

USD/JPY kept pushing higher Tuesday, revisiting the cyclical high of Y145.90 printed on Sep 22, when Japanese officials intervened in currency markets. The level capped gains as jawboning returned, while negative risk sentiment generated some support for the yen.

• U.S./Japan 2-year yield spread shrunk 1.2bp, while 10-year differential widened 6.4bp, as cash bond trading re-opened after Monday's market closures in the U.S. and Japan. The yield on 10-year JGBs operated in the vicinity of the BoJ's 0.25% cap; they failed to trade for the third straight session amid the central bank's overwhelming presence in the market.
• Equity sentiment remained negative post-Asia. Benchmark U.S. indices made an attempt at recovery, but retreated again as BoE Gov Bailey reminded about the imminent end to the UK central bank's support for the gilt market. The VIX index was 3.6% higher come the end of play.
• Japanese officials resumed their jawboning, vowing readiness to take action and curb excessive volatility in FX markets at any point, even while en route for the G20 summit in Washington D.C. They are planning to use the summit to discuss FX interventions with international partners.
• Spot USD/JPY trades at Y145.82 at typing. Topside focus remains on Sep 22 high/2.764 proj of the Aug 2 - 8 - 11 price swing at Y145.90/146.03. Conversely, a dip through Sep 22 low of Y140.36 is needed to highlight a top.