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USD/JPY Tracking Lower Amid Further US Yield Pull Back

JPY

USD/JPY sits lower, down around 0.40% versus NY closing levels, last near 150.35, which is fresh session lows. Yen strength is broadly in line with the other majors (BBDXY down 0.30%), but underperforming the higher beta plays in terms of AUD and NZD. The continued move down in US yields today, post the FOMC, (cash Tsy yields off a further 2-3bps) is weighing on the USD.

  • In terms of downside technicals, the 20-day EMA sits at 149.66, although key support is defined at the 50-day EMA, at 148.17.
  • Our simple model for USD/JPY based of 10yr swap rate spreads with the US, puts the pair back at 149.23, so still comfortably below current spot levels. This estimate has been volatile over the past week as the differential has moved around a lot (with the BoJ and FOMC injecting volatility), but at +335bps we sit below last week's highs around +350bps.
  • On the macro front, headlines have crossed that PM Kishida will spend over ¥17trln on cost of living support to address inflation pressures, which will include tax cuts (see this link for more details).
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