Yen Outperforms On Higher JGB Yields, AS BoJ Outlook Assessed

Yen strength has been evident in the G10 FX space as the Wednesday session has progressed. The BBDXY sits a touch below NY closing levels but is still holding above 1238 at this stage.

• Slightly lower USD index levels are largely due to a firmer yen backdrop. USD/JPY is back sub 148.00, the pair around 0.40% stronger in yen terms (last near 147.80).
• A modest move and well above Tuesday lows (146.99), but JGB yields have risen strongly as traders assess the risks around a BoJ move in the first half of the year. The 10yr US-JP government bond yield differential is back sub +340bps, comfortably off recent highs (near +350bps). Outright 10yr JGB yields are back to 0.74%, fresh highs since mid Dec last year.
• AUD and NZD have lost some ground against the USD, with yen cross sales a potential factor. AUD/USD last near 0.6570, off close to 0.20%. NZD/USD is down 0.10%, so outperforming slightly, the pair last near 0.6095.
• Earlier we had stronger than expected non-tradables Q4 inflation, which has helped the Kiwi at the margins.
• Looking ahead, a host of European Flash PMIs preview the latest strength of regional economies. The Bank of Canada rate decision will also highlight.