Surging Core Yields Drives Yen Underperformance

Yen was an outlier through Tuesday's session, losing 0.44%, to finish up the only G10 currency weaker against the USD. Post the Asia close we saw a good degree of volatility in the pair. We sunk towards 139.00 post the US CPI print, only to reverse sharply higher, getting above 140.30 late in NY. We sit at 140.20 currently.

• Yen largely matched the gyrations in US yields, the 2yr fell sub 4.50% post the CPI print only to surge back above 4.70%. Front end U.K yields rose 26bps on stronger than expected jobs/wages data. This likely aided the US move and weighed on JPY from a cross standpoint. GBP/JPY surged to fresh highs, last in the 176.80/85 region. This is fresh highs back to late 2015/early 2016.
• For USD/JPY, attention is on key resistance at the top of a bull channel drawn from the Jan 16 low. The line intersects at 141.30 today. A clear break of this hurdle would reinforce a bullish theme and open 141.61, the Nov 23 2022 high.
• MNI also reported that there is no prospect that the Bank of Japan will scrap yield curve control this year, because even if policymakers become confident of a virtuous cycle between wage hikes and price rises they would still want to avoid any sharp rise in interest rates, MNI understands.
• Whilst it is possible that the BOJ could adjust the parameters of its yield curve policy, perhaps by modifying the zero percent target rate at the centre of its -0.5% to 0.5% tolerance band for the 10-year bond, this would only be to mitigate unwanted bond market distortions. See this link for more details.
• The local data calendar is empty today.