USD/JPY Holding Above 150.00, Looks Too High Relative To Yield Differentials

USD/JPY was mostly on the front foot post the Asia close on Tuesday until getting near 150.70. From there we drifted lower and last tracked near 150.40 in early Wednesday Asia Pac dealing. The yen lost 0.23% for the session, mid-point from a relative G10 standpoint, as broader USD indices recovered ground (BBDXY +0.26%).

• The modest USD/JPY pull back through NY trade was consistent with lower US yields, although the pair still looks too high relative to recent yield trend shifts. The chart below overlays USD/JPY against the 10yr US-JP government bond yield differential.
• The caveat of course is we could see further downside in JGB yields when onshore markets open today, although US yields have clearly been the bigger driver of this spread in recent months.
• Elsewhere, equity sentiment was mixed in EU/US markets, but commodity indices were noticeably weaker. Oil was off 4% for the benchmark Brent contract. This should aid the broader Japan terms of trade outlook, although arguably we need to see more downside for it become a bigger positive.
• Locally, on the data front today we have Sep preliminary readings for the leading and coincident indices.
• The US Treasury noted in its FX manipulation report that the authorities intervened in yen last year, but this was to reduce yen volatility. Japan was not on the US Treasury's watchlist.

Fig 1: USD/JPY Versus US-JP 10yr Government Bond Yield Differential

Source: MNI - Market News/Bloomberg