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USD/JPY Back To Late 2022 Levels, Higher US Yields Drives Yen Underperformance

JPY

Yen was the weakest performer through Friday's session within the G10 space, losing 1.30%. We currently sit just below Friday session highs (which came in around 136.50/55), with the pair last at 136.35/40. The USD was firmer across the board, as US yields surged following the stronger than expected PCE deflator print.

  • USD/JPY continues to follow the improved US yield backdrop for the most part, not getting any meaningful benefit from the risk off tone in equities. The US-JP 10yr swap spread rose ~10bps through Friday's session, now back to +284bps.
  • Upside focus in the pair rests on the 136.67 level, a 38.2% retracement of the Oct 21 - Jan 16 bear leg. Beyond that the simple 200-day MA comes in around 137.17, while the pre-Dec BoJ highs in the pair are around the 137.50 region. The pair is above all key EMAs now.
  • The local data calendar just has the Dec leading and coincident indices out, which are unlikely to move market sentiment. The main focus is likely to rest on Tokyo CPI, due later this week.
  • Incoming BoJ Governor Ueda struck a balanced tone on Friday, which didn't shift market sentiment and certainly wasn’t enough to offset the firmer US yield backdrop from a USD/JPY standpoint. We get to hear again from Ueda today in terms of upper house hearings.
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