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Yen Gets Reprieve From Softer U.S. Tsy Yields


U.S. Tsy yields dropped as talk of potential for a sooner Fed pivot grew louder, allowing USD/JPY to move away from multi-decade highs printed last week. Poor earnings reports from U.S. tech giants, underwhelming data outturns earlier in the week and a smaller-than-forecast rate hike from the BoC supported the narrative that Fed tightening is filtering through into the economy.

  • Expectations that the BoJ will stick with its ultra-loose monetary policy settings (see our preview here) were cemented by a decision to boost the sizes of bond purchases in yesterday's round of Rinban operations across the 10-25 & 25+ Year baskets. Widely watched 10-year swaps retreated from multi-year highs. Still, most had already seen the BoJ stand its ground this week.
  • U.S./Japan yield spreads narrowed on Wednesday, with 2-Year gap 6.2bp tightening by and 10-year spread shrinking by 9.7bp come the end of play.
  • Equity sentiment was wobbly after disappointing earnings reports from some U.S. tech giants. The NASDAQ 100 shed 2%, but most European benchmarks firmed, while the VIX index fell 4.2%.
  • Spot USD/JPY last -5 pips at Y146.32. On the downside, bears look for a breach of Oct 24 low of Y145.56. Bulls look for a rebound towards Oct 21 cycle high of Y151.95.
  • Tokyo CPI will hit the wires tomorrow, ahead of the BoJ's policy announcement.

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