USD/JPY Back Above 130

USD/JPY has recaptured the 130.00 handle, levels last seen on the 11th of May. Rising core yields has driven a sharp turnaround in the pair, we are up close to 2.4% since the start of the week.

• JPY got little relief from weaker equities in the US and EU overnight. Falls were not aggressively sharp though and the US VIX index still ended the session down.
• Better US data, particularly the upside ISM print, has likely reduced recession fears to a degree. Fed speak overnight also pushed back against recession concerns.
• Such a backdrop has likely helped USD/JPY keep a fairly strong beta with respect to higher US yields. Note that Fed-dated OIS now prices in a post-Dec FOMC Fed Funds rate of ~2.80% (up from 2.73% late on Tuesday and ~2.65% at the close of play last week).
• The local data calendar is light, with monetary base figures due. Weekly foreign investment flow data is also on tap.
• Yesterday, BoJ Deputy Governor Wakatabe reiterated the BoJ's easing bias. He stated an easy policy bias needs to continue to address low inflation, while fresh easing can't be ruled out if downside risks to growth materialize. Wakatabe is a known dove.