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Japanese Yen Continues To Weaken Following BOJ Overnight

FOREX
  • Although off session highs, the USD index has extended the recovery that began late last week, rising 0.26% at typing, and looking set to extend its streak of consecutive winning days to 4. Greenback strength has been driven on Tuesday by a strong USDJPY rally in the aftermath of the BOJ decision.
  • Late upside across USDJPY puts pair at new highs and briefly tops the resistance mentioned a handful of times today at Y150.89 - clearing the path for a test on last November's highs at 151.91 a little further out - and levels that will likely re-ignite intervention speculation from the Japanese authorities.
  • Move in currency markets coincides with resumed gains for equities, as the e-mini S&P sees buying interest up to yesterday's highs at 5240.25. We note the downside pressure on the front-end of the USD/JPY vol curve - highly correlated with JPY downside: USD/JPY 3m implied vols are now through the YTD lows to print levels last seen in March 2022.
  • Elsewhere, the RBA decision overnight came in unchanged, as expected, and has worked against Antipodean currencies as the RBA dropped their tightening bias in the policy statement. AUDUSD (-0.44%) has backtracked below the 200-dma and traded within 4 pips of the 0.6500 handle, weakness through which would put prices at the lowest level since March 6th.
  • Tight ranges for major pairs such as EURUSD, GBPUSD and USDCHF meant that the broad-based yen weakness kept focus on cross/JPY, a theme that may continue as we approach tomorrow’s Fed decision and press conference, given the Yen’s sensitivity to US yields.
  • UK inflation kicks off Wednesday’s docket before all focus turns to the Fed’s summary of economic projections and Chair Powell. Markets will also be on the lookout for potential comments from ECB’s Lagarde, due to speak at the ECB and its Watchers Conference, in Frankfurt.
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