Yen Edges Higher Ahead Of Japanese Trade Data

USD/JPY traded with a bullish bias Wednesday, despite notable narrowing in U.S./Japan 10-Year yield spread. Fed tightening outlook remained front and centre.

• The rate turned bid in Tokyo hours as the aversion of worse case scenario surrounding the missile blast in Poland reduced demand for the safe-haven yen. Focus then turned to the U.S., where a beat in retail sales and a subsequent miss in industrial output moved the greenback in opposite directions. Fedspeak remained under scrutiny, with Governor Waller noting that he was "more comfortable" with a downsized 50bp hike at the next meeting, while Daly & Williams pointed to the need for continued tightening.
• U.S./Japan 2-year yield spread was little changed (+0.5bp) come the end of the day, but 10-year gap tightened 8.3bp, falling below the 350bp level for the first time in more than a month.
• Equity sentiment was negative, with most benchmark indices in the red, even as the VIX index fell 1.75%.
• Spot USD/JPY last deals at Y139.39, down 11 pips on the day. A clean break below the 61.8% retracement of the Aug 2 - Oct 21 upleg at Y138.64 would reinforce bearish conditions. Conversely, bulls look for a rebound above the 100-DMA at Y140.91.
• Japanese trade deficit is expected to have narrowed to Y1.6200tn last month from the revised Y2.0943btn prior, according to a Blomberg survey. The data is due shortly.