Yen Recovery Loses Steam Amid Fed Repricing

USD/JPY staged a dynamic turnaround Tuesday as fresh rounds of hawkish Fedspeak facilitated a rebound from the rate's 100-DMA, putting an end to an impressive four-day sell-off.

• The pair's dip in Asia hours was unwound in NY hours as Fed speakers reaffirmed their resolve in fighting inflation, pushing back against the narrative that underpinned a moderation in hawkish FOMC expectations over the past week or so.
• U.S. Tsys went offered across the curve, driving a rebound in U.S. Tsy/JGB yield gaps. The spread on 10-year debt widened ~19bp to 257bp come the closing bell. This outweighed the yen's safe haven appeal amid risk-negative market conditions.
• Providing evidence of cautious mood music, equity benchmarks post Asia sank, while the VIX index crept higher. Risk aversion was linked to Sino-U.S. tensions over Taiwan.
• USD/JPY has reversed its initial downtick, tracking a pullback in T-Notes, as Fed's Bullard ('22 voter) stressed that the Fed is committed to its inflation target, adding that a soft economic landing "doesn't require gradualism."
• The pair last deals at Y133.38, up 20 pips on the day. Bulls now need gains past Jul 27 high of Y137.46 to catch a breath and set their sights firmly on the topside. Bears look for a retreat past the 100-DMA/round figure support at Y130.41/00.
• On the data front, focus turns to Japanese earnings/spending figures, due Friday.