Overbought Conditions Allowing Pullback?

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 (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 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. USD/JPY last deals at Y121.90, with initial technical support at Y121.97 breached, bears now look to the Mar 24 low (Y120.95) as the next meaningful target.