February 07, 2023 21:42 GMT
Rebounds, Outperforms Higher US Yield Backdrop
Yen was the top performer in the G10 space through Tuesday's session, up close to 1.2%. The pair continued to trend down post the Asia close, before getting just below 130.50 late in NY trade. We sit above these levels now, back around the 131.05/10 range. A failure to break above the 50-day EMA around 132.90 may have encouraged some selling interest in the pair.
- Still, yen strength looks a little at odds with a still supportive US yield backdrop. The chart below plots USD/JPY versus the US-JP 10yr government bond differential for the past 3 months.
- Comments from Powell during the US session didn't present as hawkish backdrop as the market may have feared, continuing to focus on the disinflation process, although noting further hikes are likely if the labor market remains strong.
- At face value though equities and the USD gave more risk-on signals relative to US fixed income markets.
- Yen may have received carry over support from yesterday's stronger than expected wages data, although end of year bonuses may have inflated the numbers (scheduled pay rose 1.9% y/y, with Dec bonuses +7.6% y/y). Wages remains a key focus point for the BoJ.
- Today's data includes the Dec trade and current account figures, along with bank lending. later on the Jan Eco Watchers survey is out.
Fig 1: USD/JPY & US-JP 10yr Spread
Source: MNI - Market News/Bloomberg
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