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Yen Dominance Continues

JPY

Monday brought an extension to the yen's impressive rebound from recent cyclical lows, with USD/JPY tumbling past consecutive round figures to bottom out at Y131.60 (that level has already been breached this morning).

  • Blame continued reassessment of the outlook for Fed/BoJ policy divergence coupled with fresh safe haven demand amid heightened geopolitical risks and headwinds to global growth.
  • Demand for safety promoted the tightening in Japan/U.S. yield differential. The gap between 10-year yield shrank ~8bp on Monday as U.S. Tsys richened.
  • USD/JPY 1-month risk reversal sank deeper into negative territory, hitting its worst levels since Jul 14, as bearish sentiment keeps building among options traders.
  • Selling pressure extends into the Tokyo session, briefly sending USD/JPY past key support from Jun 16 low of Y131.50 to its lowest point in two months. Jitters surrounding U.S. House Speaker Pelosi's touted Taiwan trip are likely helping the yen.
  • The pair last deals at Y131.51, down 10 pips on the day. The next target on the downside is Y130.00, a psychologically significant round figure. Bulls need a rebound above Jul 27 high of Y137.46 to get some reprieve.
  • Looking ahead, Japan's earnings/spending data will be published this Friday.
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