Yen Pauses Dramatic Sell-Off, Greenback Retreats

The yen staged a comeback even as the initial round of sales in early Tokyo trade briefly pushed USD/JPY above the Y129.00 figure. The rate's advance towards the psychologically important Y130.00 figure put the resolve of JPY bears to a test, with participants trying to estimate the probability of an intervention around that level.

• Japan's Deputy Chief Cabinet Secretary Isozaki said that the government will coordinate with other currency authorities as it continues to watch FX moves with vigilance. Local officials have been issuing warning on rapid yen weakening pretty much every day lately.
• The BoJ stepped in with unlimited fixed-rate JGB purchases to enforce the official cap on 10-Year JGB yield. The action was expected, but there was speculation that some participants expected something extra.
• For the record, Japan's March trade deficit proved deeper than expected. While the yen showed little reaction to domestic data (as it usually does), the report should give JPY bears another argument in support of their case.
• USD/JPY implied volatilities kept rising across the curve (1-year tenor reached a new two-year high). The pair's 3-month 25 delta risk reversal erased its initial uptick but remains above par.
• The pullback in USD/JPY coincided with a bout of broader greenback sales, making the U.S. dollar the worst performer among the world's major currencies.
• The greenback's retreat allowed USD/CNH to give away its initial gains. The rate had earlier shot higher in reaction to the PBOC fix, with China's central bank setting the yuan reference rate ~100 pips above sell-side estimate.
• Antipodean FX paced gains in the G10 basket. Although AUD/JPY moved away from fresh multi-year highs, it managed to hold above the Y95.00 mark cleared on Tuesday, when the rate charted a bull pennant pattern.
• Focus moves to Canadian CPI data and U.S. existing home sales as well as comments from several Fed & ECB speakers.