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USD/JPY Wedged Between Key Levels, No Clear Consensus On BoJ Taper Plans

JPY

USD/JPY is down slightly in early Monday dealings, last near 157.35/40. We got to 157.3 in very early dealing this morning as the USD faltered modestly on news that President Biden is dropping out of the Presidential race. However, follow through has been very limited. Friday ranges in USD/JPY were 156.96 to 157.86 in the pair.

  • Yen was little changed for Friday's session, with the USD mostly on the front foot against the majors, the BBDXY USD index rising 0.21% and finishing near weekly highs. A slightly softer inflation backdrop in Japan (from Friday) has also weighed on BoJ hiking odds in the the near term.
  • US yields ended last week firmer, aiding the USD backdrop. US-JP yield differentials firmed through the latter stages of last week, aiding some USD/JPY stability.
  • US Tsy futures are a touch higher in early Monday dealings, with focus likely to rest on whether we see any retracement in the Trump reflation trade (generally a supportive yield backdrop), with the US Republicans still firm favorites to win the White House, but odds have fallen from highs early last week.
  • For USD/JPY, the broader technical backdrop is a cautious one. Last Wednesday’s sell-off confirmed a clear breach of 158.75, the trendline drawn from the Dec 28 low last year. This break highlights a potential reversal and signals scope for a deeper retracement, towards 154.55 next, the Jun 4 low. Initial firm resistance is seen at 159.16, the 20-day EMA.
  • Locally today we just have Tokyo condominiums for sale on tap. BoJ minutes from consultation with market participants around bond buying reduction plans didn't produce a clear consensus (see this BBG link).
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