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Risk Reprieve Sends Yen To New 24-Year Lows

JPY

Spot USD/JPY refreshed its 24-year highs on Tuesday as continued recovery in risk sentiment and a decline in VIX index reduced demand for safe haven assets.

  • A further uptick in U.S. Tsy yields after the public holiday in the U.S. facilitated the move in USD/JPY, as the spread with yields on JGBs widened anew, amid the BoJ's defiance of the global hawkish charge.
  • The rally in spot USD/JPY was somewhat at odds with signals from the options space, as 1-month risk reversal faltered into European hours and only partially trimmed losses later in the day.
  • Continued yen weakness runs the risk of becoming politicised as Japan enters campaign season ahead of the July 10 upper house election. Opposition CDP leader is already using the term "Kishida inflation" to associate the Prime Minister's support for ultra-easy monetary policy with yen weakness and resultant price increases.
  • USD/JPY last deals at Y136.50, a touch lower on the day, with bulls looking for renewed gains above yesterday's high of Y136.70, followed by Oct 30, 1998 high of Y136.88. Conversely, key short-term support is at Y131.50, the low print of Jun 16.
  • The remaining highlights on Japan's data docket for this week are flash Jibun Bank PMIs (Thursday) & national CPI (Friday).
  • Elsewhere, the BoJ will publish the minutes from its April monetary policy meeting today, with Board member Amamiya set to speak on Friday.

Fig. 1: USD/JPY vs. U.S. 10-Year Tsy Yield (%)

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Spot USD/JPY refreshed its 24-year highs on Tuesday as continued recovery in risk sentiment and a decline in VIX index reduced demand for safe haven assets.

  • A further uptick in U.S. Tsy yields after the public holiday in the U.S. facilitated the move in USD/JPY, as the spread with yields on JGBs widened anew, amid the BoJ's defiance of the global hawkish charge.
  • The rally in spot USD/JPY was somewhat at odds with signals from the options space, as 1-month risk reversal faltered into European hours and only partially trimmed losses later in the day.
  • Continued yen weakness runs the risk of becoming politicised as Japan enters campaign season ahead of the July 10 upper house election. Opposition CDP leader is already using the term "Kishida inflation" to associate the Prime Minister's support for ultra-easy monetary policy with yen weakness and resultant price increases.
  • USD/JPY last deals at Y136.50, a touch lower on the day, with bulls looking for renewed gains above yesterday's high of Y136.70, followed by Oct 30, 1998 high of Y136.88. Conversely, key short-term support is at Y131.50, the low print of Jun 16.
  • The remaining highlights on Japan's data docket for this week are flash Jibun Bank PMIs (Thursday) & national CPI (Friday).
  • Elsewhere, the BoJ will publish the minutes from its April monetary policy meeting today, with Board member Amamiya set to speak on Friday.

Fig. 1: USD/JPY vs. U.S. 10-Year Tsy Yield (%)

Keep reading...Show less