JPY: USD/JPY Testing Late Dec Lows, Equity Risk Off Helping

USD/JPY is just up from session lows, last near 153.35/40, around 0.65% stronger in yen terms. Earlier lows were at 153.17. Current levels are very close to Dec 18 lows from last year. A clean break sub 153.30 could see further downside targeted, with 152.55, the 61.8% retracement of the Dec 3 - Jan 10 bull leg, potentially in focus. 

• Outside of the previously mentioned labor earnings data beat, and encouraging words from the Economic Minister on positive inflation trends, the broader risk mood has also turned more supportive for yen.
• China aggregate equity indices couldn't sustain early gains, after returning from the LNY break. HK markets are also weaker, the HSI off over 1%. Trade tensions with the US following tariff announcements, along with poorer PMI data is a headwind. Headlines have also crossed that the US is halting inbound parcels from China & Hong Kong, adding uncertainty to the broader US-China outlook.
• Yen is up around the AUD and NZD, although these currencies are unchanged versus the USD at this stage.
• We continue to see downside in US-JP yield differentials, supporting the firmer yen backdrop, see the chart below.
• Yen volumes have dominated the FX options space so far today, with around $3.86bn in USD/JPY transactions of the total $7.7bn in transactions

Fig 1: USD/JPY Lower As US-JP Yield Differentials Shift Lower