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Yen Falters Amid Risk Of Fed Turning More Aggressively Hawkish

JPY

The yen was the worst G10 performer Wednesday as expectation-beating CPI data released out of the U.S. fanned hawkish Fed expectations, raising the prospect of a wider yield divergence between the U.S. and Japan, where interest rates are set to remain rock-bottom for now. Spot USD/JPY lodged a new cyclical high at Y137.87 in the London afternoon, before a broader market reversal allowed it to trim some gains.

  • U.S./Japan 10-Year yield gap narrowed at the margin in a volatile Wednesday trade, but the risk of re-widening remains, with recent Fed speakers beating the hawkish drum ('22 voter Mester speaks as we type).
  • Spot USD/JPY last seen at Y137.40, barely changed on the day. The round figure resistance at Y138.00 draws nearer and a break here would shift focus to Y138.56, the 1.618 proj of the Feb 24 - Mar 28 - 31 price swing. Bears look for a sell-off towards Jun 23 low of Y134.27.
  • Note that a bearish divergence has been developing in the daily chart, with the RSI failing to mimic higher highs printed by the spot rate.
  • Local headline flow remains centred around the shooting of former PM Abe, with media outlets sharing new details on the incident as they emerge.
  • Final industrial output headlines the local data docket today.
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