Lower U.S. Tsy Yields Weigh On USD/JPY, BoJ MonPol Decision Draws Nearer

USD/JPY dropped in sync with U.S. Tsy yields as data showed above-forecast sequential declines in U.S. house prices and consumer confidence. These insights factored into the perceptions of Fed tightening outlook, even as market pricing remained little changed.

• Strength showed by U.S. Tsys resulted in slight narrowing in U.S./Japan yield differentials, particularly in the long end. 2-year spread shrank 1.5bp, while 10-year gap was 14.0bp tighter come the end of the day.
• Positive equity sentiment reduced appetite for safe-haven currencies, weighing on the USD, CHF and JPY, the three worst G10 performers, in that order. Benchmark indices faltered post-Asia, as did the VIX index, which shed ~4.7%.
• Intervention talk remained front and centre, with officials still rattling that sabre towards speculators. Kyodo reported that the apparent intervention conducted on Monday may have been several hundred billion yen.
• FinMin Suzuki insisted that currency interventions are not at odds with the BoJ's ultra-loose monetary policy settings, but ex-FX chief Shinohara begged to differ. The former official told Bloomberg that interventions will not have much impact with the current policy mix.
• One-week option skews remained at/near four-months lows as we approach the BoJ's monetary policy review this Friday. The latest batch of Tokyo CPI figures will cross the wires earlier in the day.
• Spot USD/JPY last +17 pips at Y148.10. Topside focus falls on Oct 21 high of Y151.95, while bears look for losses towards Oct 24 low of Y145.56.