Verbal Interventions Keep Lid On USD/JPY As Rate Approaches Y145

Japanese officials stepped up rhetoric surrounding sharp yen depreciation, which likely prevented USD/JPY from challenging recent cycle high/round figure of Y144.99/145.00. The pair ran as high as to Y144.96 before easing off on the back of jaw-boning by Japan's currency czar, while further comments from FinMin Suzuki helped keep the rate anchored below these psychological levels.

• USD/JPY pulled back from session highs as Japan's FX chief Kanda said officials were watching "very sudden" FX moves and were ready to "respond appropriately without ruling out any options." Another leg lower came as e-mini futures turned red (they are back in positive territory at typing), but the pair clawed back losses over the Tokyo fix. Recovery lost momentum shortly thereafter, with USD/JPY extending losses as FinMin Suzuki delivered the strongest warning on yen weakness as of yet and refused to rule out an intervention in FX markets.
• Comments from Japanese officials outweighed interest rate dynamics, with U.S. Tsy yields last 1.7-2.6bp higher across the curve, as the region digested expectation-busting U.S. CPI data released Tuesday. Meeting-dated OIS is pricing ~84bp worth of tightening for the FOMC meeting next week. By contrast, the BoJ boosted bond purchases as the yield on 10-Year JGBs tested the 0.25% cap enforced by Japan's central bank.
• The broader G10 FX space stabilised after post-U.S. CPI turmoil. The BBDXY index oscillated near yesterday's peak, showing high correlation with USD/JPY moves.
• Commodity-tied currencies traded on a softer footing as the commodity complex remained fragile, with the BCOM index losing ground.
• South Korean officials followed in the footsteps of Japanese colleagues, vowing to closely monitor FX markets, as spot USD/KRW jumped the most since Jun to print fresh cyclical highs.
• Consumer inflation data from the UK and Sweden will cross the wires in European hours, before the release of U.S. PPI figures. Comments are due from ECB's Villeroy.