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JPY: Close at Current Levels Would Erase Election Rally

JPY
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USD/JPY's sell-off extends into a second session with today's pullback low at 151.43 marking a break below the 200-dma of Y152.00 and, more significantly, the 50-day EMA of 151.56. A close at current or lower levels confirms a reversal of the election-triggered rally, with Trump's tariff threats a key driver on top of the building expectation for a BoJ rate hike at the December meeting (OIS-markets see a 25bps hike near 65% priced). This week's price action also shows well that USD/JPY can shrug off US equity strength, should risk-off be pervasive elsewhere (particularly via European stock markets).

  • Tomorrow's Tokyo CPI for Nov (published three weeks before the national print) is seen rising further, but it's the Dec 12 Tankan survey that will likely be a greater determinant for the Dec 19 decision. USD/JPY vols are bid to accompany spot weakness, with 1m (capturing the Dec BoJ, as well as Fed decision) topping 12 points for the first time in two weeks today.
  • Recall month-end flows (likely front-loaded this week due to the Thanksgiving market holidays across Thursday & Friday) pointed to USD sales to rebalance against a surging US equity market, which will be adding to the downside pressure.
  • Worth noting the heavy supply weighing on JPY over the past two sessions, with both yesterday's session and today's trade so far well ahead of average volumes for currency futures. Today's cumulative activity sits over 30% ahead of average for this time of day.
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USD/JPY's sell-off extends into a second session with today's pullback low at 151.43 marking a break below the 200-dma of Y152.00 and, more significantly, the 50-day EMA of 151.56. A close at current or lower levels confirms a reversal of the election-triggered rally, with Trump's tariff threats a key driver on top of the building expectation for a BoJ rate hike at the December meeting (OIS-markets see a 25bps hike near 65% priced). This week's price action also shows well that USD/JPY can shrug off US equity strength, should risk-off be pervasive elsewhere (particularly via European stock markets).

  • Tomorrow's Tokyo CPI for Nov (published three weeks before the national print) is seen rising further, but it's the Dec 12 Tankan survey that will likely be a greater determinant for the Dec 19 decision. USD/JPY vols are bid to accompany spot weakness, with 1m (capturing the Dec BoJ, as well as Fed decision) topping 12 points for the first time in two weeks today.
  • Recall month-end flows (likely front-loaded this week due to the Thanksgiving market holidays across Thursday & Friday) pointed to USD sales to rebalance against a surging US equity market, which will be adding to the downside pressure.
  • Worth noting the heavy supply weighing on JPY over the past two sessions, with both yesterday's session and today's trade so far well ahead of average volumes for currency futures. Today's cumulative activity sits over 30% ahead of average for this time of day.