Widening Yield Spreads Push USD/JPY Further Towards Psychological Y150 Mark

Renewed widening of U.S./Japan yields spreads pushed USD/JPY higher Wednesday. The pair topped out just shy of the psychologically significant Y150 threshold, with participants waiting agog for signs of an intervention by Japanese officials.

• Strong inflation prints across the UK and Canada coupled with a weak 20-Year U.S. Tsy offering pushed core bond yields higher. 10-Year. With Tsys losing altitude after Asia hours, U.S./Japan 2-year yield differential expanded by 10.9bp & 10-Year gap was 12.6bp wider.
• JGBs cheapened past the BoJ's tolerance threshold, as the market tests the central bank's dovish resolve. This raises the prospect of the BoJ stepping up YCC enforcement measures.
• Broader risk aversion allowed the yen to fare better than most of its G10 peers, albeit the greenback outperformed. Most equity benchmarks faltered post-Asia, while the VIX index added 0.85%.
• Intervention talk continued to do the rounds as Japanese officials echoed their familiar stance on FX. While they flagged volatility as a potential trigger, the Y150.00 round figure is still considered an important psychological threshold.
• Spot USD/JPY trades -8 pips at Y149.82. Trendline resistance drawn off Apr 28 peak gave way and the Y150.00 provides the next topside target, followed by the 3.618 proj of the Aug 2 - 8 - 11 price swing at Y150.45. Bears look for losses towards Oct 5 low of Y143.53.
• Japan's trade report hits at the bottom of the hour.

Fig. 1: U.S./Japan 2-Year Yield Spread vs. USD/JPY

Source: MNI - Market News/Bloomberg