Still JPY Watching

It was another session of JPY watching overnight, with senior Japanese government officials underscoring a need for orderly FX market moves, while continuing to point to vigilance and a sense of urgency when it comes to monitoring the FX space. We also saw Finance Minister Suzuki flag the need to avoid “negative JPY weakness,” which was enough to allow XXX/JPY crosses to run higher into the Tokyo fix (no firm pushback on JPY weakness was apparent in that particular verse), further boosted by fixing-related demand, before a firmer round of JPY strength kicked in (aided by the previously flagged rhetoric). We also saw the BoJ step in to defend the upper limit of its permitted 10-Year JGB yield trading band on two occasions, with limited, if any, tangible spill over apparent in the FX space. JPY managed to work itself to the top of the G10 FX leader board. USD/JPY is 50 or so pips lower on the day at typing, printing ~Y123.30, after showing as low as Y123.11 (Monday’s high was Y125.09). As our technical analyst flagged on Monday, at current levels, USD/JPY is extremely overbought and the most recent portion of the uptrend is very steep. A correction is overdue. Still, he also noted that technical signals suggest that the pair is likely to continue to appreciate in Q2 and a clear break of Y125.00 and Y125.86 would strengthen the bullish condition. To the downside, initial support is located at Monday’s low (Y121.97),

• Elsewhere, the USD fluctuated, with a lack of wider themes and headline flow apparent. Bursts of Tsy weakness provided some sporadic support for the greenback, but didn’t provide a consistent source of support (there were no notable extensions through Monday’s highs in yield terms), leaving the majority of the major USD crosses (excluding USD/JPY) little changed into European hours.
• A deepening of Shanghai’s COVID restrictions failed to meaningfully impact the space.
• The economic docket is rather light on Tuesday, with focus set to fall on the ongoing Russia-Ukraine summit in Turkey, in addition to addresses from Fed’s Williams & Harker, ECB’s de Cos & Riksbank’s Floden.