Yen Finds Poise, Snaps Two-Day Losing Streak

The yen regained poise while the greenback faltered Thursday, prompting USD/JPY to snap a two-day winning streak.

• The move was facilitated by a dip in U.S. Tsy yields, which coincided with the pair's downleg in London hours. Note that the spread between yields on U.S. & Japanese gov't bonds remains a potent driver of USD/JPY.
• The risk environment turned more questionable as the day progressed, with U.S. equity benchmarks struggling (albeit NASDAQ finished higher). Still, the VIX index slipped.
• USD/JPY risk reversal extended recent gains, hitting multi-week highs across the curve. 1-month tenor showed at its best levels since Jun 13, when it dipped into negative territory.
• The spot rate sits at Y132.81 at typing, down 8 pips on the day. Bears set their sights on the 100-DMA, which limited losses on Aug 2 and last intersects at Y130.70. Bulls would be pleased by a rally above the 50-DMA at Y134.83, followed by Jul 27 high of Y137.46.
• The fallout from U.S. House Speaker Pelosi's visit to Taiwan is weighing on Sino-Japanese relations. China called off a planned meeting between its Foreign Minister Wang and his Japanese counterpart Hayashi, while Tokyo said missiles test-fired by the PLA landed in its exclusive economic zone for the first time.
• Japan's earnings/spending data will cross the wires at the bottom of the hour. It is expected that workers' wages rose 1.9% Y/Y in June, according to Bloomberg consensus forecast, after a 1.0% increase registered in May.