/JPY: Westpac: Risk Barometer In For Repair

Westpac note that “Since Russia’s invasion of Ukraine, AUD remains the strongest G10 currency and the Japanese yen the weakest, both by a considerable margin.”

• “This is of course the opposite outcome we would expect if the only factor in play was AUD/JPY reaction to a significant, very negative global event. The 60-day correlation between daily changes in AUD/JPY and global equities is a decent 0.48.”
• “So we cannot dismiss AUD/JPY’s traditional role as a risk barometer. However, if we break the pair into its components, we see the AUD/USD 60-day correlation running around 0.50 and USD/JPY near zero.”
• “USD/JPY’s mostly neutral response to daily equity moves despite the turbulence of equities during the war reflects the dominance of the signal from US interest rates. The Fed of course began a tightening cycle despite the war and is now set for 50bp hikes. With the BoJ maintaining its “around” 0% 10-Year JGB target, the 10-Year T-note pickup is up to 250bp from about 155bp to start the year, driving steep USD/JPY gains.”
• “AUD/JPY may probe Y94-95 near term but is probably moving to a consolidation mode and should soften over Q2 to the Y92 area.”