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USD/JPY Firms Further as Yield Differential Widens

FOREX
  • The front-end of the US yield curve extended higher in Monday trade, putting the US 2y yield within range of 5.00% - last crossed at the beginning of July. This dictated play across currency markets, with the greenback firmer against most others in G10.
  • Dollar strength played out via new highs in USD/JPY, clearing levels seen earlier in 2023 to trade at levels November 2022 levels and prices at which the Japanese authorities last intervened in the currency.
  • Concurrently, the JPY trade-weighted index is hitting new pullback lows and through the early July lowest levels - now clearing at levels not seen since the 1980s. Kanda, Japan's currency official, last stated the MoF would consider all options on "excessive" currency moves on July 21st. Trade-weighted JPY has fallen 2.5% since.
  • Scandi currencies were the poorest performers as markets took a risk-off footing in response to reports out of China suggesting economic fragility is not contained to just the property sector, as a notable wealth manager missed payments to investors. The Hang Seng and Shanghai Composite both posted losses into the close.
  • Focus Tuesday turns to RBA minutes, Chinese industrial production and retail sales for July as well as UK jobs, German ZEW, Canadian CPI and US retail sales releases. Fed's Kashkari is the sole CB speaker.
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