JPY Firms In Asia, Despite BoJ Upping Defence of 10-Year Yield Target

It was another case of JPY watching during Asia-Pac hours. The U.S./Japan 10-Year yield differential has edged further away from the recent wides, with U.S. 10-Year Tsys managing to outperform their JGB counterparts, even as the BoJ adjusted its Rinban operations to counter recent curve-wide moves higher in yields, with upsizing and unscheduled Rinban operations evident this morning, before an unconventional, unscheduled second round of Rinban operations was tendered during the Tokyo afternoon (the wider focus of today’s BoJ’s purchases means that the super-long end of the JGB curve has benefitted more than 10s). We would suggest that the 2bp narrowing in the yield spread shouldn’t equate to the ~100 pip fall observed in USD/JPY (at least in isolation), but as our technical analyst previously noted, a pullback in the cross was overdue, given the overbought conditions, which is likely factoring into the move. JPY sits atop the G10 FX pile as a result, although it wasn’t all one-way trade, with the initial reaction to the BoJ’s first Rinban announcement being one of limited JPY weakness, before yield differential took control. USD/JPY last deals at Y121.85 (after printing as low as Y121.32), with initial technical support at Y121.97 breached, bears now look to the Mar 24 low (Y120.95) as the next meaningful target. JPY

• The aforementioned downtick in U.S. Tsy yields and pull lower in USD/JPY applied some pressure to the USD in a broader context, with the greenback finding itself at the bottom of the G10 FX pile as a result.
• There wasn’t much in the way of meaningful headline flow elsewhere, with the latest localised city-wide lockdown in China having little impact on broader price action.
• Looking ahead, U.S. ADP employment data, and German state & national CPI readings provide the highlights when it comes to Wednesday’s economic prints. Elsewhere, we will get a raft of central bank speakers from the Fed, ECB & BoE.