USD/JPY Falters Ahead Of U.S. Midterms & CPI, 50-DMA Put To Test

Spot USD/JPY fell Tuesday as the greenback lost ground across the board, lagging all its major peers save for the NOK ahead of key local risk events this week. The yen was among the strongest performers in G10 FX space.

• U.S./Japan yield spreads shrank, with 2-year gap narrowing by 6.9bp and 10-year differential tightening by 8.5bp. Narrower yield spreads lent support to the beleaguered yen.
• Benchmark European & U.S. equity indices advanced, but the VIX index rebounded from cyclical lows, adding nearly 5% on the day.
• Japan's Cabinet gave a nod to a Y29.1tn extra budget to fund its stimulus package compiled to mitigate the impact of rising prices.
• The rate last deals at Y145.41, down 27 pips on the day, with the yen pacing gains in the G10 currency basket.
• Technically, although USD/JPY remains above the Ichimoku Cloud, the conversion line has moved below the base line, which should put bears on the alert.
• The pair tested support from its 50-DMA, which intersects at Y145.39 today, providing a key initial target this morning. Below there opens Oct 27 low of Y145.11. Bulls look for a bounce off the nearby moving average and a renewed attack on Oct 21 high of Y151.95.
• Japan's BoP current account balance will cross the wires shortly, with consensus forecast pointing to a Y250.0bn surplus. Eco Watchers Survey is due later in the day.