JPY Tumbles On C Bank Divergence As Liquidity Begins To Return To Markets

USD/JPY was the notable mover in Asia-Pac dealing, with momentum from Monday’s session and early ’22 plays surrounding Fed/BoJ policy divergence allowing the cross to top its ’21 high, printing at the highest level witnessed since early ’17 in the process. Outperformance for Japanese equity markets during Asia-Pac hours and some modest Tokyo fix-related demand for USD/JPY provided further sources of support for the rate at different times in the day, as Tokyo participants returned after the elongated weekend. The rate has traded as high as Y115.82, with our technical analyst noting that the next level of meaningful resistance is located at the 1.764 projection of the Apr 23 - Jul 2 - Aug 4 price swing (Y116.09).

• That dynamic left JPY comfortably at the foot of the G10 FX table.
• There wasn’t much else to note within the G10 FX space, outside of the stabilisation in U.S. Tsys resulting in the broader DXY ticking away from Monday’s peak. This came after the greenback benefitted from higher U.S. Tsy yields as ’22 trading got underway.
• The commodity dollar bloc sat atop the G10 FX sphere, while GBP softened against all but the JPY.
• It will be the latest ISM manufacturing survey and an address from Minneapolis Fed President Kashkari (dove, ’23 voter) that generate most of the interest when it comes to the remainder of Tuesday’s docket. We will also see the latest round of German retail sales data. We also note that London participants return after their NY break, which will further bolster liquidity.